These are 2 of my best-performing FTSE 100 investments in 2021

These FTSE 100 stocks have done particularly well in 2021 because the recovery increased demand for their products. Manika Premsingh expects more of the same in 2022. 

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Among my stock market investments this year, those that have stood out are the FTSE 100 oil biggies BP (LSE: BP) and Royal Dutch Shell (LSE: RDSB). No points for guessing why. Oil stocks are classic cyclicals. Such stocks are those where demand is sensitive to where we are in the economic cycle. So when the economy is in doldrums, as we saw in 2020, the oil price crashes. And during times of recovery, it picks up. This time around, perhaps even more so. The economic slowdown associated with the pandemic also brought all travel to a halt. As a result, there was a big impact on these stocks. It was natural then, that as the recovery ensued, oil prices rallied and along with that, these stocks’ prices.

More upside to come?

I do not think that we have seen all the upside to these stocks that we are going to. Think about this. We are still under the cloud of the pandemic. Travel remains restricted and consumers are being cautious too. Once these trends are behind us, I think we could see even higher oil demand. Also, continuing economic recovery will increase oil demand. This could further boost both BP and Shell’s financial performance. 

Their improved finances could, in turn, result in higher dividends. These stocks boasted fairly high dividend yields pre-pandemic. But at present, they are nowhere near the highest dividend-payers. BP’s current dividend yield is 4.7% and Shell’s is 3.7%. These are not bad and are higher than the FTSE 100 average yield of 3.5%. But they are far from the 10%+ levels seen for the highest yielders. However, I am optimistic that their yields could rise.  

Moreover, these stocks offer me a nice hedge against inflation. The UK’s inflation is on a tear and is expected to remain so through next year. Many FTSE 100 and FTSE 250 stocks could be impacted by this as their costs increase. But the oil giants are on the right side of inflation. They are actually beneficiaries from it. So, even if other stocks in my portfolio suffer, these can offer a stabilising impact. 

What I’d do now

The big risk to oil stocks is another lockdown in 2022. If another variant of coronavirus emerges, who knows what could happen next? And if the last two years have taught us anything, it is to expect the unexpected. But I have to make my investment decisions based on the most predictable outcomes that I can see, and not on outlier events. Based on these, both oil stocks look quite good to me for at least the foreseeable future. Considering that their share prices are still below pre-pandemic levels, I think I am going to add to my holdings of these stocks in early 2022. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns BP and Royal Dutch Shell B. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

£20,000 in cash? Here’s how I’d aim to unlock a £15,025 annual second income

This writer explains how he’d go about investing £20k in a Stocks and Shares ISA account to target a sizeable…

Read more »

Investing Articles

5.5% yield! A magnificent FTSE 100 stock I’d buy to target a lifelong passive income

Looking for ways to make a market-beating second income? Here's a FTSE 100 stock that Royston Wild thinks is worth…

Read more »

Investing Articles

3 top FTSE 100 dividend shares to buy for a new 2024 ISA?

How much work does it take to pick three FTSE 100 stocks to lay down the start of a new…

Read more »

Investing Articles

With £11,000 in savings, here’s how I’d aim for £9,600 annual passive income

We increasingly need to build up as much as we can to provide some passive income for our retirement years.…

Read more »

Middle-aged black male working at home desk
Investing Articles

3 reasons why Vodafone shares look dirt-cheap! Is it now time to buy?

Could Vodafone shares be considered the FTSE 100's greatest bargain? After today's results, Royston Wild thinks the answer might be…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Up 42%, I think Scottish Mortgage shares still have a lot more to give!

After falling from their peak, Scottish Mortgage shares are clawing back gains. This Fool reckons it could be a stock…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Is Warren Buffett warning us that a stock market crash is coming?

Has Warren Buffett just admitted being bearish on his own company, Berkshire Hathaway, and the stock market in general?

Read more »

Investing Articles

Should I buy Raspberry Pi shares after the IPO?

As well as Shein, we could be seeing a Raspberry Pi IPO in London pretty soon. What do we know…

Read more »