It looks like there could be plenty of market volatility during 2022, but Brewin Dolphin’s John Moore suggests portfolios can be protected to a degree by looking for cheap but high-quality UK stocks. 
Moore, senior investment manager at Brewin Dolphin, said the key to protecting portfolios in recent years has been avoiding companies that are too exposed to changes in the pandemic and other highly cyclical industries, such as financial services and oil stocks.
Instead, a focus on high-quality companies has provided a level of stability throughout the pandemic. This is even more so the case if they are undervalued or under-appreciated leaders in industries that don’t necessarily grab headlines.
“Four UK companies particularly stand out as quality businesses, the fortunes of which are not inherently tied to Covid-19. Each of them also has the financial strength to invest in their businesses, exposure to end markets with good growth prospects and the comfort of an increasing dividend for investors,” Moore said.
AstraZeneca
First up is pharmaceutical giant AstraZeneca, which has been one of the key suppliers of Covid-19 vaccines. However, Moore argued that the company still does not look “overly expensive” as it is trading on around 16.8x forward earnings.
“This doesn’t feel right for a company which will learn from the experience of the past two years and will be well placed to deal with the next development of its type,” he added.
Performance of stock vs market since start of 2020
Source: FE Analytics
“AstraZeneca has undertaken joint ventures and holds valuable intellectual property, giving it a reasonable moat over competitors as a drug discovery business.”
The company has a dividend yield starting at around 2.5% and Moore said this looks set to grow further, suggesting the firm is in a strong position regardless of what happens next with the pandemic.
According to the analyst rating consensus on Tipranks, AstraZeneca is a ‘strong buy’ with 12 analysts giving it a ‘buy’ rating. One analyst has it as a ‘hold’ and one has a ‘sell’ rating on the stock.
Smith & Nephew
Medical technology company Smith & Nephew, on the other hand, has been hampered by the Covid-19 pandemic, as it has caused a fall in the number of elective surgeries and supply chain shortages. This means is it currently trading at 17.1x earnings
Moore said: “It has been a difficult year or two for the business, but its long-term prospects look much better – the need for hips and knee replacements are unlikely to stop.
Performance of stock vs market since start of 2020
Source: FE Analytics
“It instinctively feels like an example of a stock that lends itself to the old Buffett-ism of ‘buying when others are fearful’. Dividend growth from 80 cents per share to 95 cents next year is not an insignificant uplift and provides security for any short-term volatility in the share price.”
Tipranks has Smith & Nephew as another ‘strong buy, with three ‘buy’ ratings, one ‘hold’ and no ‘sells’.
Prudential
China might be the world’s second-largest economy and one of the main drivers of global growth, but the volatility of the past year has shown how investors in the country can often have their fingers burnt.
However, Moore highlighted savings and insurance group Prudential as an alternative way of gaining exposure to China and the wider Asia region. The company, which has primary listings in London and Hong Kong, recently demerged its US business to focus on Asia and Africa.
Performance of stock vs market since start of 2020
Source: FE Analytics
“As these parts of the world become wealthier, more people will need the type of products that Prudential provides,” he added.
“The company trades on a valuation of 15.3x earnings and, although the dividend yield is relatively low at just shy of 1%, it has room to grow as the business finds its feet in its new shape.”
Prudential is another ‘strong buy’, according to the consensus on Tipranks, with all seven analysts giving ratings on the group saying it is a ‘buy’.
Barratt Developments
While Brewin Dolphin’s previous stock pick was firmly about opportunities outside of the UK, its final tip revolves around the domestic economy: Barratt Developments.
“Barratt is fundamentally about the demand for homes in the UK. Barratt looks to be among the best placed of the major UK housebuilders, yet trades on just 9.6x earnings and yields a dividend of 4%, with cash on left on the balance sheet to invest,” Moore said.
Performance of stock vs market since start of 2020
Source: FE Analytics
“Part of the reason for the company’s relatively low valuation is concern that the housing market will turn. Arguably that is already built into the price and, seemingly, whatever happens to house prices, there appears to be strong underlying demand. Barratt has a strong, positive sales trajectory ahead of it, supporting the business in the immediate term.”
Tipranks’ analyst rating consensus has Barratt Developments as a ‘moderate buy’, after five analysts said it was a ‘buy’ and two said it was a ‘hold’. None have a ‘sell’ rating on the stock.