19 financially robust companies to own in 2025
When the outlook is uncertain and risk appetite drops, it could be time to invest in businesses with more stable operating models and robust financials. City writer Graeme Evans reveals this analyst’s favourite stocks.
9th January 2025 15:50
by Graeme Evans from interactive investor
Next (LSE:NXT), easyJet (LSE:EZJ) and the 20% yielding Ithaca Energy Ordinary Share (LSE:ITH) are among top picks after a City bank compiled a 19-strong list of financially robust companies with attractive investment qualities.
Peel Hunt’s Fundamentals selection also includes Howden Joinery Group (LSE:HWDN), Hiscox Ltd (LSE:HSX), JD Sports Fashion (LSE:JD.) and LondonMetric Property (LSE:LMP) from the FTSE 100 and Hochschild Mining (LSE:HOC) and Renishaw (LSE:RSW) in the FTSE 250 index.
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Last year’s line-up, which featured the strongly performing Games Workshop Group (LSE:GAW), TP ICAP GROUP (LSE:TCAP) and Kier Group (LSE:KIE), delivered a 16% weighted average return and 9% on a simple basis.
The new selection for 2025 covers 13 sectors, with retail having three picks followed by industrials, support services and transport with two.
The interpretation of “fundamentals” varies by industry, but is chiefly focused on a healthy balance sheet, strong cash flow, good dividend or capital return history/outlook, combined with relatively steady and reliable business performance.
Peel Hunt said: “When the outlook is more uncertain and the appetite for risk drops, there is often a desire to look for businesses that have more stable operating models and robust financials.
“While these companies principally tick those boxes, we believe they also have other attractive investment qualities.”
Next remains a key sector holding for Peel Hunt, with the top-quartile return on capital, strong cash returns and steady underlying growth making it “one of the few long-term retail compounders”.
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The bank’s retail team also recommends JD Sports Fashion after a period in which the transatlantic chain’s stock market fortunes have been blighted by economic headwinds.
With a strong balance sheet, record of brand leadership and strong relationship with suppliers, the bank is backing the group’s forecast momentum to re-emerge later in the year.
It said: “The valuation appears to expect continued heavy downgrades, which we find unlikely. The shares are a clear Buy to us.”
Peel Hunt sees them more than doubling to 250p, the second-highest upside on the list after the bank forecast a 237% rise for biotherapeutics firm PureTech Health (LSE:PRTC).
Having generated significant proceeds from its Karuna schizophrenia treatment business, the cash on hand easily covers the £375 million market capitalisation before taking into account the value of its pipeline assets.
The inclusion of easyJet is built around a strong balance sheet, with net cash of more than £500 million, and a stock that still trades with a valuation of only eight times forecast earnings compared to 15 times in 2019.
Peel Hunt said: “easyJet offers a combination of growth and self-help in a capacity-constrained industry, with upgrade potential and a low valuation.” The price target is 68% higher at 900p.
The other transport stock on the list is FirstGroup (LSE:FGP), having outperformed operationally and carried out a series of share buybacks in the last 18 months.
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The threat of rail nationalisation has hung over the valuation, even though it also has two open-access rail operations which have been very successful.
Peel Hunt values the shares 25% higher at 210p, adding that the rail and bus operator has only £5 million of net debt forecast for 2025 as well as “attractive fundamentals”.
Hochschild Mining shares enjoyed a very strong 2024, supported by rising gold and silver prices as well as the ramping up of its Mara Rosa mine in Brazil.
It has been able to repay debt and advance growth projects, while a resumption of capital returns is set to be considered with annual results in the new year.
Peel Hunt sees further upside to 280p with the potential for significant long-term value should the company unlock development projects such as Monte do Carmo in Brazil.
High-yielding Ithaca Energy is described as a “must own” after the North Sea producer’s tie-up with Eni UK gave it stakes in six of the ten largest fields in the UK Continental Shelf.
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Peel Hunt said Ithaca was now a substantially larger and financially stronger business, with significant financing capacity to fund future growth.
It continued to demonstrate its commitment to shareholder returns by paying a $100 million dividend in the third quarter and $200 million special in the fourth quarter.
Peel Hunt sees a similar distribution pattern this year, leaving Ithaca shares on a prospective yield of 22% for 2025 and 20% in 2026. It added: “Even if the share price remains unchanged over the next 12 months (which we do not foresee), the dividend yield alone is likely to outperform nearly any benchmark.”
The other stocks on the list are Babcock International Group (LSE:BAB), Dunelm Group (LSE:DNLM), Grafton Group Units (LSE:GFTU), Oxford Instruments (LSE:OXIG), Premier Foods (LSE:PFD), Renew Holdings (LSE:RNWH), Softcat (LSE:SCT) and TP ICAP.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.