In the first of a two-part series Shares talks to a range of fund managers about the stocks they like for 2022. Covering both UK and overseas markets, the experts offer a range of ideas spanning technology and banking to leisure and automotive sectors.

The second part of the series (to be published on 23 December) will reveal a selection of fund managers’ biggest disappointments for 2021 and why their investment thesis didn’t play out as expected.

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Samantha Gleave, co-manager

Liontrust European Growth Fund (B4ZM1M7)

Stock pick: Daimler (DAI:ETR)

From the perspective of Liontrust’s ‘Cashflow Solution’ investment process, German auto firm Daimler continues to score very well. This includes a top decile score for its momentum/growth, a good cash return score, and it is sitting in the top decile on recovering value and contrarian value.

The business, which owns Mercedes Benz, is showing good momentum following the disruption from Covid, with the order backlog at a record level.

A significant cost restructuring programme is underway including a 20% reduction in its fixed cost base.

Finally, as it moves to become a luxury, electric carmaker, Daimler’s trucks business has just been demerged with a separate stock market listing.

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James Henderson, co-portfolio manager

Henderson Opportunities Trust (HOT)

Stock pick: Springfield Properties (SPR:AIM)

Springfield is solely a Scottish housebuilder. There has been less house price inflation in Scotland than in much of the rest of the UK. This means there is a bit of catch-up happening.

There is real demand for good quality housing in Scotland and Springfield is the market leader. It is developing villages and building outside the major cities.

Springfield recently made a very good acquisition of a private housebuilder that completes its geographical spread in Scotland. It has a large land bank, and it should achieve good margins on its house price sales.

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Dan Nickols, head of strategy

Jupiter’s UK small and mid-cap team

Stock pick: De La Rue (DLAR)

I am optimistic about De La Rue going into 2022. I think this company is misunderstood by the market – the perception is that as a producer of banknotes, its future will be negatively impacted by the switch to cashless payments.

This view ignores the global perspective, where banknotes remain the main form of exchange, particularly for largely unbanked populations.

Moreover, there will be a powerful shift towards the use of polymer banknotes and De La Rue is a global leader in this space.

The company also has expertise in so-called authentication products which, for example, protects brand owners against counterfeit goods.

The business is under strong new management who have delivered a successful turnaround and the balance sheet is sound. Despite this, the shares (based on consensus forecasts, which we consider to be realistic) trade on a lowly price to earnings multiple of 9.1 for the year ending March 2022, falling to 7-times for March 2023. As the company delivers against these forecasts, an upwards rerating should follow.

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Stephen Yiu, fund manager

Blue Whale Growth Fund (BD6PG78)

Stock pick: Nvidia (NVDA:NDQ)

You may not have heard of Nvidia but there is a chance you’re already a regular user of one of the many services its silicon chips enable. These include video recommendations on TikTok, grammar checks in Microsoft Word and augmented-reality shopping experiences on Facebook.

Nvidia’s premium processors were initially used for graphics-heavy computer games but their ability to accelerate the speed of data processing was quickly discovered by the major cloud service providers such as Amazon Web Services, Google Cloud Platform and Microsoft Azure. They have now become the gold standard for running apps and processes in the cloud.

I believe Nvidia’s opportunity lies at the confluence of three major secular trends over the next decade – artificial intelligence, augmented reality and 5G – all three of which drive increasingly higher demands on processing power, something Nvidia is well-positioned to supply.

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Charles Montanaro, fund manager

Montanaro UK Smaller Companies (MTU)

Stock pick: Watches of Switzerland (WOSG)

My choice is for a company that will benefit as the economy reopens with a gradual return to pre-pandemic times: Watches of Switzerland.

The UK’s largest luxury watch retailer operates in both the UK and US with leading brands such as Rolex, Cartier, OMEGA, TAG Heuer, Breitling, Audemars, Piguet, Tudor and Patek Philippe.

The recent Bond film No Time to Die saw sales of the Omega Seamaster Diver 300M 007 edition go through the roof.

Growth should continue thanks to five new stores in the US bringing the total to 36 in 12 states; an increasing perception of watches as an investment alongside art or wine; consumers with plenty of cash to spend; and a return to travel which should boost airport/tourism sales.

Its share of Rolex sales has quadrupled to 50% in the UK over the past decade driven by an astute and ambitious management team with high aspirations.

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Charles Luke, fund manager

Murray Income Trust (MUT)

Stock pick: Inchcape (INCH)

One stock in the portfolio with bright prospects for next year is car distributor Inchcape. Firstly, I think the company’s distribution business is of higher quality than the market gives it credit for, given its high returns on capital, close customer relationships and attractive margins.

Secondly, I think the growth potential of the business is also not widely understood. It has exposure to high growth markets, distribution consolidation opportunities, the ability to increase aftermarket profits, potentially larger M&A activity given the company’s strong balance sheet, with all of that accompanied by an attractive dividend yield and modest price to earnings multiple.

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Richard Penny, fund manager

TM CRUX UK Special Situations Fund (BG5Q5X2)

Stock pick: XP Factory (XPF:AIM)

The share I am most optimistic about for 2022 is XP Factory, previously known as Escape Hunt.

The company has done a transformational deal to buy Boom Battle Bars, a leisure-led bar operation not dissimilar to Flight Club and Putt Shack.

For some time, I have been looking for a hospitality or leisure play that can take advantage of the exceptional property deals that have become available post pandemic.

Boom Battle Bars has an advanced pipeline of 22 sites, many opening in 2022. There are extremely attractive deals from landlords including 50% to 75% of fit out costs, up to two-year rent-free periods and 30%-plus discounts to previous rental levels.

I do believe the Boom Battle Bars concept is attractive to consumers, but the property deals are what can really transform XP’s economics.

While I do not believe these shares are for widows and orphans, two of the companies’ new sites at Oxford Street and the O2 centre in London have the potential to justify the purchase price recently paid.

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Thomas Moore, fund manager

ASI UK Income Unconstrain-ed Fund (B79X967) / ASI Income Focus Fund (BD9X6D5)

Stock pick: Glencore (GLEN)

Miner and commodities trader Glencore appears well positioned looking ahead to 2022.

The green revolution will drive increased demand for some of Glencore’s key commodities, including copper, cobalt, nickel and zinc.

At the same time, we see supply remaining constrained, driving up the prices of these commodities.

At spot commodity prices, Glencore trades at a free cash flow yield of over 20%. In other words, it would generate its entire market capitalisation in cash in just five years, highlighting the significant value we see in the shares.

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Abby Glennie, fund manager

ASI UK Mid-Cap Equity Fund (B0XWNT2) / ASI UK Opportunities Equity Fund (B7LZCR3)

Stock pick: Big Technologies (BIG:AIM)

We believe this company has bright prospects for 2022 and beyond. Big Technologies listed in recent months, and is a global leader in electronic monitoring, led by the founder Sara Murray who also founded Confused.com.

It has market leading technology in an industry where there is strong potential to disrupt incumbents who often only hold their position due to being part of larger services businesses.

The reliability of its product drives a better outcome for both the offenders and the welfare authorities. Compliance improves, the quality of experience is better, and the cost of tagging and monitoring individuals is lower due to fewer faults and a simple to implement product.

The company already has contracts in a range of countries around the world. We believe these provide revenue visibility as they will repeat, and it will continue to win new work. It also has opportunities to use the technology in health and care markets.

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Simon Edelsten, co-manager

Mid Wynd Investment Trust (MWY) and Artemis Global Select Fund (B568S20)

Stock pick: Yaskawa (6506:TYO)

Currently the US is the main economy recovering from lockdown. Despite further virus variants delaying recovery, over the next year we expect more economies to pick up.

The best potential may be in Asia, where companies are determined to invest in growth and improve the quality of their products. We therefore expect our Japanese automation holdings to see strong growth in income next year.

A lot of these companies have seen extremely good orders coming in, but they’ve not been able to fulfil those orders because of supply chain issues. Over the next 12 months the blockages should lift.

We have high hopes for the automation theme in the year to come and a company like Yaskawa, the world’s second largest manufacturer of robots, is central to this theme.

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Michael O’Brien, portfolio manager

Fundsmith Emerging Equities   Trust (FEET)

Stock pick: PB Fintech (543390:BOM)

At Fundsmith we rarely buy companies when they first come to the stock market, but we have bought a stake in PB Fintech. It operates the PolicyBazaar platform and is the largest online distributor of life and health insurance to retail customers in India.

Since inception in 2008 PB Fintech has increased its share of the overall insurance product market to 7% and its share of the online segment is 65%.

Its operationally geared business model places it in good stead to grow returns strongly, especially given that revenue growth has averaged 35% over the last three years despite the pandemic.

PB Fintech is well placed to benefit from population growth, increased income and changing purchasing habits and the sector in which the business operates is forecast to grow at an annual compound rate of c.20% over the course of this decade.

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Rajendra Nair, portfolio manager

JPMorgan Indian Investment Trust (JII)

Stock pick: HDFC Bank (HDFCBANK:NSE)

While the near-term outlook of India is undoubtedly dependent on the trajectory of the pandemic, the investment case for the asset class remains compelling in the long term.

After a period of weak earnings over the past few years, India has been forecast to deliver the fastest growth rate of any major country over the next decade. With over 480 million Indians under the age of 20 — considerably more than the entire 370 million population of Northern America — the working age population of India is also set to grow strongly.

Moreover, as India remains an early-stage growth economy, we are continuing to identify superior growth opportunities with a long-term horizon. In this context, financials, particularly private banks, are the biggest holding in the JPMorgan Indian Investment Trust.

The market for financial products in India is growing rapidly. Well-run Indian private banks have the unique opportunity to grow across economic cycles by gaining market share from weaker state-owned banks.

We’ve had a long-term overweight in private sector banks, such as HDFC Bank, India’s largest private sector lender. During the pandemic, despite financials being in the eye of the storm, HDFC proved its resilience and continued to gain market share.

We believe this opportunity remains intact and we remain very optimistic on HDFC’s proposition over the long term.

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