What to Buy, What to Sell: Strategic Portfolio Updates for 2025

First and foremost, we’d like to wish you a Happy New Year! We’re incredibly grateful to have you as part of our community, your trust and support inspire everything we do. Reflecting on the final quarter of 2024, it’s been a year of ups and downs in the markets, yet we’re thrilled to have closed it with a robust annualized return of 18.40%. As we welcome the new year, our focus is on reviewing and fine-tuning our portfolios, the growth, income, and mining portfolios, to ensure they’re well-positioned for the evolving market and economic landscape. In this article, we’ll outline the stocks we plan to remove from our portfolios as we remain committed to our risk-adjusted strategy. Additionally, we’ll share the stocks that may be strong contenders for a “buy” as we look to optimize opportunities in 2025. Let’s dive in! A Look Back at 2024 The Australian equity market last year had quite the journey, shaped by a mix of positive economic signals, shifting sector dynamics, and global trends. One of the biggest drivers was growing optimism around a “soft landing” for the economy. The prospect of interest rate cuts and signs of easing inflation lifted spirits in sectors like financials, technology, and consumer discretionary. The Reserve Bank of Australia’s hints at potential rate cuts also helped fuel this positive momentum. That said, not everything was smooth sailing. The mining sector faced some challenges, largely due to weaker demand from China and rising operational costs, which limited its contribution to the market’s overall performance. On the flip side, the strong showing from U.S. markets—especially in tech—created a ripple effect that boosted investor confidence here at home. We saw some clear sector rotation, with growth-focused industries leading the way as investors sought fresh opportunities. Looking Ahead to 2025 As we step into 2025, there’s a lot to feel optimistic about. The outlook for Australian equities is shaping up to be a mix of gradual economic recovery and varying sector performance. Here are a few key things we’re keeping an eye on: 1. Economic Growth: Lower inflation and rising real incomes should give the economy a boost, though consumer spending might stay a bit cautious as people weigh their options. 2. Investment Trends: Business investment is set to grow steadily, and we’re expecting housing-related investments to pick up later in the year as the RBA’s anticipated rate cuts start to make an impact. 3. Monetary Policy: The RBA seems likely to hold off on rate cuts until mid-2025, focusing on balancing inflation and unemployment. Of course, there are challenges to consider, like stretched market valuations and slower profit growth in some sectors. Declining commodity prices and softer earnings from banks might weigh on things a bit, while elevated valuations could bring some bumps along the way. Where We See Opportunity Some sectors look particularly promising for the year ahead. Industrials, Healthcare, and Infrastructure are expected to stand out, supported by strong fundamentals and steady demand. Meanwhile, the mining and financial sectors might face a tougher path, with profit growth likely to remain subdued. In this kind of environment, we believe it’s all about balance. Staying focused on high-quality companies with solid financials and sustainable competitive advantages will be key. Active management and selective stock picking can help us navigate the twists and turns of what’s likely to be a dynamic year. AGL Energy Limited(ASX: AGL) – Sell AGL Energy Limited (ASX: AGL) is currently facing significant challenges that suggest it may be time for investors to exit their positions. The company has revised its earnings guidance for FY25, projecting a potential underlying net profit decline of 10% to 35%. EBITDA is expected to range between $1.9 billion and $2.2 billion, indicating stagnation in growth. This updated forecast reflects the expiration of favourable coal and gas contracts, which are anticipated to result in a decrease in earnings over the coming years. These factors raise concerns about AGL’s ability to maintain consistent profitability. In addition, AGL is grappling with the costs associated with its transition to renewable energy, which is increasing its operating expenses. The company is also experiencing flat revenues, further squeezing margins. As its coal power stations close, AGL faces the challenge of replacing the lost income. Despite substantial ongoing investments, the stock has seen significant volatility, including a drop of nearly 7% following recent negative assessments. The stock is currently trading at a forward P/E ratio of approximately 12 times FY25 estimated earnings, which appears high given the anticipated decline in profits. With these combined pressures, investors may want to consider reducing their exposure to AGL Energy. GQG Partners Inc (ASX: GQG) – Sell GQG Partners Inc (ASX: GQG) has faced a challenging start to 2025, prompting discussions about whether it might be time for investors to exit their positions. The company’s recent performance update revealed net outflows of $200 million and negative investment performance, contributing to a significant drop in its share price. While GQG reported a 27% year-on-year increase in Funds Under Management (FUM) to $153 billion by the end of 2024, this figure was below market expectations. Additionally, FUM decreased by 4.1% since November 2024, raising concerns about future growth prospects. These developments suggest that ongoing outflows could continue to negatively impact revenue, which is primarily derived from management fees. The economic environment remains volatile, with various factors, including government policy shifts and market conditions, affecting investor sentiment. GQG’s management has expressed confidence in the company’s competitive positioning, but external economic pressures could still impact both performance and investor confidence in the months ahead. Given the disappointing FUM figures relative to expectations, the recent decline in performance, and the ongoing economic uncertainties, investors may want to reassess their positions in GQG Partners Inc to mitigate potential risks to their portfolios. The company’s reliance on management fees rather than performance fees further increases the vulnerability to outflows, making it crucial to monitor its ability to sustain growth. Nickel Industries Ltd (ASX: NIC) – Take Profit +6.5% We have decided to take profits on Nickel Industries Ltd (ASX: NIC) despite a 6.5% return, driven by several key factors. Market conditions suggest that the company may face challenges in the near term, with the nickel market expected to experience a surplus until 2025. This oversupply is likely to place downward pressure on prices, which could affect profitability for Nickel Industries. Additionally, despite forecasts of 48% annual earnings growth, recent declines in EBITDA margins from 29% to 21% raise concerns about the company’s ability to meet these projections amidst tough market conditions. The stock is currently trading at relatively low valuation multiples, with an EV/EBITDA of 5.2x for CY24 and 4.1x for CY25, indicating potential undervaluation. However, if market conditions worsen or earnings do not meet expectations, these multiples could compress further, potentially leading to a decline in share price. From a strategic standpoint, while the company’s focus on transitioning to Class 1 nickel production for the EV battery market is a promising long-term strategy, the success of this transition is uncertain and may take time to materialize into substantial revenue growth. In the short term, the announcement of increased dividends and share buybacks suggests that management is focusing on rewarding shareholders but may be indicating a lack of more lucrative growth opportunities within the business. Given these factors, we believe it is prudent to take profits now, reducing exposure to potential market volatility and uncertainties surrounding nickel pricing. BHP Group Ltd (ASX: BHP) – Sell BHP Group Ltd has encountered significant headwinds heading into 2025, prompting concerns over the company’s future performance. The company has reported a notable 39% drop in earnings per share (EPS), which far outpaces its share price decline, suggesting a bearish outlook for the company. Additionally, weakening demand for commodities, particularly iron ore, and ongoing price volatility further dampen the company’s growth potential, especially considering its heavy reliance on China, which accounts for a significant portion of its revenue. Moreover, BHP’s strategic shifts, including its exit from the petroleum sector through the merger with Woodside Energy, raise questions about future revenue streams in the energy market. While focusing on copper and other essential minerals, the capital-intensive nature of projects such as the Jansen potash venture may limit near-term profitability. Technical indicators also suggest a “Strong Sell” recommendation, indicating that market sentiment is currently negative. Given these factors—declining earnings, strategic shifts, and negative market conditions, the outlook for BHP heading into 2025 appears uncertain. Paladin Energy Ltd (ASX: PDN) – Take Profit + 1,029% We have decided to take profit and secure our solid 1,029% return on Paladin Energy Ltd (ASX: PDN) due to recent operational challenges and market volatility. Paladin has revised its production guidance for FY25, now expecting output of 3.0-3.6 million pounds of uranium, down from the previous forecast of 4.0-4.5 million pounds. This revision comes after lower-than-expected stockpile grades and water availability issues at its Langer Heinrich mine in Namibia, contributing to a near 30% decline in the share price following the announcement. This drop in investor confidence, combined with the company’s ongoing production difficulties, has led us to reassess our position. Furthermore, the uranium market remains volatile, with spot prices fluctuating between $72-$74 per pound. While there is a bullish long-term outlook for uranium, driven by increasing demand from nuclear energy and decarbonization efforts, the current price instability poses a risk to Paladin’s profitability. Despite a potential recovery in production expected later in FY2025, the immediate outlook remains uncertain, making it an opportune time to take profits and lock in our significant returns. With production challenges and market volatility, we believe it’s best to secure gains and reassess once the company stabilizes its operations. GenusPlus Group Ltd Fully Paid Ord. Shrs (ASX: GNP) – Buy GenusPlus Group Ltd (ASX: GNP) stands out as a strong investment for 2025, driven by its impressive financial performance and solid growth prospects. With a market cap of $472.09 million, the company has experienced remarkable growth, up by 116.84% over the past year. Its revenue generation is equally compelling, reaching $551.19 million in the last 12 months, and analysts expect this to rise to $327 million in the upcoming quarter. The company’s net income of $19.26 million and an EPS of $0.11 demonstrate its profitability, positioning GenusPlus favourably in the industrial sector. The stock’s current price of $2.58 reflects the strong investor confidence, reinforcing its positive momentum. What makes GenusPlus even more attractive is its position in the rapidly expanding power and communications infrastructure sector, driven by increasing demand for energy and telecom services across Australia. The company is well-positioned to capitalize on this growth, with its solid financials and expanding market footprint. GenusPlus has shown consistent profitability and a strong track record of securing strategic contracts, making it a compelling choice for investors seeking growth in the industrial sector in 2025. With favourable industry dynamics and robust fundamentals, GenusPlus is set to continue its upward trajectory. Amcor CDI (ASX: AMC) – Buy Amcor CDI (ASX: AMC) is shaping up to be a standout investment for 2025, backed by solid financial results and smart growth moves. In the first quarter of fiscal 2025, Amcor delivered a 5% bump in adjusted EPS to 16.2 cents, while adjusted EBIT climbed 3% to $365 million. Net sales hit $3.353 billion, showing the company’s ability to stay on track with strong customer demand and efficient operations. With a presence in over 200 sites across 40 countries, Amcor is leveraging its global scale to drive innovation and meet the growing demand for sustainable packaging. What’s even more appealing is Amcor’s 5% dividend yield, which is not only competitive but also above its five-year average of 4.38%. This speaks to the company’s focus on rewarding shareholders while maintaining a healthy cash flow. Their recent acquisition of Berry Global Group Inc. adds another layer of growth potential, streamlining costs and boosting procurement capabilities. With sustainability and innovation at the core of their strategy, Amcor is well-positioned to thrive in a rapidly evolving packaging market, making it a great pick for those looking for both growth and income. Goodman Group (ASX: GMG) – Buy Goodman Group (ASX: GMG) presents a compelling investment opportunity for 2025, driven by a combination of strong growth potential and a solid market position. The company is expected to experience substantial growth, with earnings forecasted to increase at an annual rate of 27.3%, and revenue projected to rise by 29.6% over the next few years. Earnings per share (EPS) are anticipated to grow by 26.6% annually, supported by Goodman’s strategic investments in data centres, an area experiencing rapid expansion due to the increasing demand for cloud computing and data storage. Additionally, the company maintains a 97.4% occupancy rate across its $78.8 billion portfolio, positioning it well to capitalize on these high-growth sectors. Financially, Goodman Group is in a strong position, with a market capitalization of approximately $70 billion and a low 21% debt-to-equity ratio. The company has delivered a 49.9% return over the past year, outperforming both the broader market and its sector. Furthermore, Goodman has demonstrated a commitment to sustainability, achieving carbon neutrality across its operations, which enhances its appeal to ESG-conscious investors. With its robust growth prospects, solid financials, and focus on sustainability, Goodman Group is well-positioned to perform strongly in 2025.