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Top picks for new money for 2025

By December 22, 2024No Comments

Top picks for new money for 2025

We had our office Christmas party at the Keg recently. Everyone was there: Steve Nyvik, Rob Bisbicis, David Martin (compliance) and Wanda Nagles (marketing) were present.  We enjoyed the nice food and drinks, talked about a lot of things, but just like last year, we talked about what each one one of us is buying for 2025 and beyond.

Rob Bisbicis (Associate Portfolio Manager)

Although I said the Fantastic Five would likely be my picks for the next five years, with the rapid ascent of the stock prices, I am apprehensive because of valuation risk.  I expect the operating results to continue to perform, but I would not add to those positions at this time. I would invest new money in the following areas:

Undervalued Chinese stocks like PDD, BABA and JD

Investors should be cautious about investing in China but the valuations are incredible for some amazing companies such as the ones above. For example PDD has the following metrics:

Revenue growth:  85.2%

Earnings per share growth:  83.4%

Return on assets:  20.3%

Return on equity:  39%

Return on invested capital: 36%

Yet it’s trading at 9x earnings. This is unavailable in North America.

Temu, PDD’s ex-China platform app, is the most downloaded US app in 2024 (both Google play store and Apple app store), following being the most downloaded US app in 2023.

BABA and JD:  continued excellence in Chinese e-commerce.

In case I’m wrong about PDD, the old guard of e-commerce in China are Alibaba and JD.com and these companies also have their stock trading at very low multiples.  Both companies have deep moats but face intense competition.  Both companies have tens of billions of dollars in cash on their balance sheets, are actively engaged in share buybacks, and they should do well in a recovering Chinese economy.  For example, BABA bought back 8% of the shares outstanding in the last fiscal year, and impressive feat, along with its first dividend and a special dividend, demonstrating a strong commitment to returning capital to shareholders.  BABA also has the largest Chinese cloud computing and AI development.

Old media companies like Disney and Warner Brothers Discovery

Old media has been badly performing in recent years but I believe is poised for a strong rebound.

Disney has a highly diversified business:  the studio, direct-to-consumer streamers, cable and broadcast TV, and theme parks, hotels and cruises.  Through its ABC and ESPN channels, DIS has the best sports rights portfolio in North America.  Broadcast TV is excellent because it is free-to-air so for consumers feeling tight for cash, they can still watch sports like NFL.  On the cable business side, it’s terrible, however, the streamers like Disney Plus and Hulu have now surpassed cable TV in terms of revenue.  Theme Parks, hotels and cruises continue to deliver impressive results and they contribute to the flywheel.

Warner Brothers Discovery has been an absolutely terrible company since it was formed in 2022.  A strong caution:  current management is not trust worthy;  they over promise and under deliver, their financial compensation is offensive relative to their operating performance, and the debt is a continued concern for the market.  However, the reality of the debt is that it is entirely fixed with low interest rates, long dated, and the company generates significant and sufficient free cash flow to manage the debt load.  The thesis here is that the studio and the streamers are impressive, underperforming assets, cable TV will continue to decline but will generate cash to pay down debt, and the company will be sold to more capable operators either as a whole or in pieces.

Small Cap US Stocks

I think small cap stocks are poised to do very well at this point in the cycle and I want a large basket of them because it is very hard to pick the winners individually, so a small cap ETF like IWM will work.

Steve Nyvik (Senior Portfolio Manager)

The Theme for me is high dividend yields:

One quarter into each of the following:

BCE Inc (BCE)

    • BCE provides wireless, broadband, television, and landline phone services in Canada. It is one of the big three national wireless carriers, with over 10 million customers constituting about 30% of the market.
    • Annual dividend of $3.99 resulting in a dividend yield of 10.66%

RioCan REIT (REI.UN)

      • RioCan owns, develops, and operates a portfolio of Canadian retail-focused, increasingly mixed-use properties.  It currently has 187 retail and mixed-use properties, including eight development properties in Canada’s most desirable locations, with an aggregate net leasable area of approximately 32.6 million square feet.
      • Annual distribution of $1.11/unit resulting in a distribution yield of 5.87%

Pfizer Inc. (PFE)

    • Pfizer is a leading developer and manufacturer of pharmaceuticals and biotech drugs.  Its market capitalization is $160.963 Billion USD.  Its 2024 estimated earnings guidance is between $2.75 to $2.95 (resulting in a forward P/E of between 8.8 to 9.4 based on $26.05 stock price)
    • Annual dividend of $1.68 resulting in a dividend yield of 6.55%

Walgreens Boots Alliance, Inc. (WBA)

    • Walgreens is one of the largest retail pharmacy chains in the United States, with over 8,000 locations.  Two thirds of US retail pharmacy revenue comes from prescription drugs, which should benefit from an aging population, branded drug inflation, and new drug launches. Management recently announced its plans to close about 1,200 (unprofitable) stores by the end of fiscal 2027, reduce its expenses, sell non-core assets to make it more profitable, and reduce debt.
    • Annual dividend of $1.00 resulting in a dividend yield of 11.55%

Constantine Lycos (Senior Portfolio Manager)

I made a video a couple of weeks ago with my new top stock picks for 2025 and beyond. It can be viewed here. My top picks for new money for 2025 and beyond are:

LyondellBasell Industries

For my first pick, for the next 12 months and beyond, I have a petrochemical producer, LyondellBasell Industries, symbol LYB. LyondellBasell have operations in the United States, Europe and Asia. This company is the world’s largest producer of polypropylene and also a major producer of polyethylene and propylene oxide. Its chemicals are used in various consumer and industrial end products. Well over half of LyondellBasell’s production comes from its North American operations. The company has been very profitable over the years but lately its profitability has declined as well as its free cash flow. They are not in trouble but the stock is down about 19% in the last 3 months while the market is up nicely. While it can always go lower, the stock trades at a good enough price to buy. 11 times forward P/E ratio, 1.8 times book value for a company that usually delivers a very high return on equity is pretty, pretty good 😆.

Plumas Bancorp

My second pick will be Plumas Bancorp, symbol PLBC. A so called regional US bank headquartered in Reno, Nevada, with operations in California and Nevada. It has a market cap of only about $300 million. Plumas Bank offers a wide range of financial and investment services to consumers and businesses and has received nationwide Preferred Lender status with the U.S. Small Business Administration. They have been able to generate a high double digit return on equity in the last 10 years with the last couple of years being even better. With this kind of profitability the stock should be trading at about 2.5 to 3 times book value yet it trades at 1.6 times. So what we have here is quite possibly another good company at a good price.

Ituran Location and Control

My third pick is Ituran Location and Control, symbol ITRN. Ituran Location and Control Ltd is an Israeli company that provides stolen vehicle recovery and tracking services. They are one of the global leaders in their business which is usually a good thing for investors, owning the higher quality businesses, when the price is right. Ths one trades at about 11.6 times forward Price to Earnings Ratio and it has good profitability and a strong balance sheet. The stock is also paying a dividend of about 4.5% which doesn’t hurt either, especially in flat or down markets, a solid dividend provides support for the price of a stock.

Give Us a Call

So, if you have any questions please don’t hesitate to give us a call. We can help you decide whether these or other investments are suitable for your already well-diversified portfolio.

Thank you and have a Merry Christmas and Happy and Prosperous New Year!!!

Constantine Lycos
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