Riding December’s Santa Claus Rally: Four ASX Picks to Explore

December is an exciting time for investing in ASX stocks, thanks to a mix of historical trends and seasonal behaviours. It’s no secret that December has traditionally been one of the better-performing months for the ASX 200 Index, largely due to the “Santa Claus rally.” This phenomenon, where stock prices rise as the year wraps up, is often linked to holiday optimism, year-end portfolio adjustments by big players, and a general boost in buying activity. Plus, December tends to recover well from September’s typical slump, giving market participants a great chance to ride the wave of renewed market momentum. The seasonal vibe of December adds an extra layer of excitement to the market. With reinvestment activity gaining momentum toward year-end and a historical tendency for stocks to rally during the holidays, this period presents a prime opportunity to strengthen portfolios. Many market participants focus on dividend-paying and fundamentally strong stocks, aiming to capitalize on the heightened market activity. By aligning with these patterns, December offers a unique opportunity to position for potentially stronger returns in the new year. As 2025 approaches, we’ve identified four stocks we believe are worth considering. Computershare Limited (ASX: CPU) – Up +35% year-to-date Computershare Limited (ASX: CPU) appears to be a solid pick for growth heading into 2025. The company had a strong showing in FY24, with an 8.9% increase in EPS and a 2.1% rise in revenue, reaching $3.3 billion. Even more impressive, EBIT shot up by 20.9%, reflecting the company’s ability to run efficiently and scale up its operations. What’s really exciting is the growth in recurring revenue, the uptick in client balances, and higher margin income, all of which position the company for even more growth ahead. Computershare’s focus on its core, capital-light businesses has paid off, especially with impressive growth in Employee Share Plans and Issuer Services. The sale of US Mortgage Services is also a big win, allowing the company to double down on higher-margin, globally scalable opportunities. Looking to FY25, the outlook remains positive. While lower interest rates could impact Margin Income, Computershare is well-prepared, with hedging strategies in place and lower debt costs. Plus, their ongoing investments in technology, acquisitions, and efficiency programs give them plenty of ways to keep driving growth. The company’s balance sheet is stronger than ever, and they’re also continuing their share buy-back program and raising dividends, which is great news for shareholders. Overall, with multiple growth drivers in place, Computershare is set to keep moving in the right direction. Management is forecasting a 7.5% rise in EPS for FY25, and we think this stock has a lot of potential for further growth in the year ahead. Downer EDI Limited (ASX: DOW) – Up +34% year-to-date Downer (ASX: DOW) looks like a solid pick to us heading into 2025, with a strong pipeline of projects and a diverse range of services set to benefit from ongoing trends like population growth and urbanization. The company operates in essential sectors such as infrastructure, utilities, public services, and defence, industries that are seeing significant investment as cities expand and governments invest in upgrading key systems. One of the most exciting developments for Downer is its recent win of a NZ$800 million contract to build the new Domestic Jet Terminal at Auckland Airport. This project, which will run through to 2029, shows Downer’s ability to take on and deliver large-scale infrastructure projects with long timelines. Hawkins, Downer’s subsidiary, has been working closely with Auckland Airport since 2022 and is well-positioned to continue this partnership, leveraging years of experience to deliver a world-class terminal. Closer to home in Australia, Downer continues to strengthen its position as a key partner for government projects. The company recently secured an $860 million maintenance contract with Homes NSW. This five-year contract, with potential extensions, will involve providing maintenance services to around 24,000 public housing dwellings across New South Wales. Downer has been working with the NSW Land and Housing Corporation for over 20 years, so this renewal not only highlights their strong track record but also their ability to lock in long-term, sustainable revenue streams. Downer is also making waves in the utilities sector. They’ve been awarded a $600 million contract with Unitywater to provide water, sewerage, and recycled water services across South-East Queensland. This contract will kick off in May 2024 and run for at least five years, with options to extend. Downer will manage capital works across Unitywater’s vast network of water and wastewater assets, including 17 sewerage treatment plants. This deal further cements Downer’s position as a leader in providing essential services to Australia’s growing population, with the company now serving over 13 million Australians, more than half of the country’s population. With such a diverse portfolio and a track record of successfully managing high-value, long-term projects, Downer is poised for continued growth. The company’s ability to secure large, strategic contracts in key sectors means they are well-positioned to capitalize on the trends shaping Australia and New Zealand’s future. As urbanization continues to drive demand for infrastructure and services, Downer’s solid contracts and government relationships provide a strong foundation for growth going into 2025. All in all, Downer is a solid stock with plenty of room to grow in the coming years. Insurance Australia Group Limited (ASX: IAG) – Up +55% year-to-date Insurance Australia Group Limited (ASX: IAG) is shaping up to be a standout stock as we head into 2025. With operations in Australia and New Zealand, the company has shown impressive growth, driven by an 11% rise in net earned premiums and a significant jump in insurance profit. They’ve been able to weather challenges like inflation and volatile weather patterns, and the results speak for themselves. IAG’s ability to improve its bottom line, growing NPAT by 7.9%, is a testament to the strength of its business model and operational improvements. What’s really exciting is how IAG is positioning itself for long-term growth. The company has been investing heavily in technology, particularly through its Enterprise Platform, which is already improving customer experience and pricing accuracy. This platform is set to support even more scale and agility, helping IAG tap into future growth opportunities. On top of that, the company’s commitment to reducing the impact of natural disasters through strategic reinsurance deals means it’s better protected from earnings volatility, giving it more stability going forward. Looking ahead, IAG’s focus on customer-centric solutions and innovation is key to its growth potential. They’ve introduced AI-powered tools to help vulnerable customers and enhanced claims management, which strengthens their relationships with policyholders. IAG is also making moves to improve its presence in key markets like New Zealand, where pricing capability and risk management have been boosted. These efforts not only improve the customer experience but also drive profitability and customer loyalty in the long run. Then there’s the exciting partnership with RACQ, which adds a whole new dimension to IAG’s growth strategy. This 25-year exclusive alliance allows IAG to expand its footprint in Queensland, offering RACQ members access to IAG’s top-notch insurance products. It’s a win-win: RACQ can leverage IAG’s technology and expertise, while IAG gains access to a larger customer base. With all these strategic initiatives in place, IAG is well-positioned to continue its impressive growth, making it an excellent stock to watch as we move into 2025. Qantas Airways Limited (ASX: QAN) – Up +65% year-to-date As we look ahead to 2025, Qantas (ASX: QAN) is shaping up to be a strong pick. The company’s performance so far is in line with expectations, and both Qantas and Jetstar are seeing solid demand across their markets. Jetstar Domestic, in particular, is doing better than expected, with stronger-than-anticipated travel demand driving up unit revenue. On top of that, Qantas Domestic is showing improved load factors and growing demand for corporate travel. With domestic revenue per seat expected to rise by 3-5% in the first half of FY25, it’s clear that Qantas is riding the wave of a recovering travel market. On the international side, things aren’t as rosy. Group International RASK is still expected to fall by 7-10%, which is in line with previous guidance. This isn’t ideal, but it’s not a big surprise, given the global challenges the airline industry has faced. What stands out, though, is how Qantas is positioning itself to benefit from its domestic strength, where growth is steady and resilient. This domestic focus should help balance out some of the pressures from international markets. Qantas Loyalty is another area where the company is shining. Following the launch of Classic Plus Flight Rewards, the loyalty program is performing well, and the business expects at least 10% growth in underlying EBIT for FY25. Even though the launch of Classic Plus may have some short-term impacts on earnings, the long-term potential of the loyalty segment remains strong, which is a big positive for the company’s profitability. Fuel prices remain a risk, especially with ongoing geopolitical volatility. But Qantas has been taking proactive steps to manage this, with disciplined hedging strategies in place to limit the impact of price swings. The company’s fuel costs for the first half of FY25 are expected to come in around $2.55 billion, including hedging and carbon costs. While fuel price fluctuations could be a challenge, Qantas’s hedging approach should help mitigate some of the risks, and any drop in fuel prices would only help improve the company’s bottom line. Lastly, Qantas’s capital management strategy is something investors should take note of. The company is halfway through a $400 million share buyback program, which demonstrates confidence in its financial health and commitment to returning value to shareholders. With this buyback expected to be completed by the end of December 2024, Qantas is demonstrating its long-term stability and willingness to reward investors. Given these positive factors, Qantas is in a strong position for growth, making it an attractive buy.