Image source: Getty Images
Given the big gains across the pond in 2024, UK-focused investors will surely be hoping for a more prosperous 2025. With this in mind, I have been analyzing the FTSE 100 index of growth stocks that investors aiming to beat the market over the next 12 months might consider buying now.
opposite choice
Pest Control Giant Rentokil Initial (LSE: RTO) may seem like an odd choice. Holders had a bad 2024 and their shares ended the year 7% below where they started. However, it could have been much worse. By mid-October, that loss was over 20%!
Much of this poor situation is due to concerns about rising costs and issues related to the acquisition of US rival Terminix. In October, the company announced that the synergies derived from the latter's integration would be affected by a delay of two to three months. Clearly, this was never going to sit well with an already nervous market. Any further delay could easily make the situation worse.
On sale
If there is a positive in all this, it is that Rentokil Initial's valuation has plummeted.
Sure, a forward price-to-earnings (P/E) ratio of 18 doesn't scream “bargain.” But it's much lower than the company's five-year average of 34.
It's worth noting that there isn't much interest from short sellers in the stock either. Put another way, few traders seem to believe that the stock price has to continue falling.
I'm inclined to agree, especially if management's cost-savings strategy (also announced in October) has worked. Any glimmer of light in March's annual results could spark a rebound in demand for the stock.
Growing interest
Real estate portal right movement (LSE: RMV) could also have a big 2025. In fact, I wonder if the share price could do particularly well in the early months as potential buyers want to avoid the April stamp duty rise.
Supporting this, the Royal Institution of Chartered Surveyors recently reported that its members (estate agents and surveyors) were receiving more inquiries and seeing more sales. I think this all bodes well for Rightmove's next set of annual figures, due to be published at the end of February.
Unlike Rentokil Initial, the stock performed quite well in 2024, benefiting from interest rates finally starting to decline. However, the real boost came as a result of multiple, albeit ultimately rejected, takeover offers from REA Group.
Quality Stock
Of course, now that the takeover rumors have died down, there's a case to be made that the stock could lose steam. A longer-than-expected spike in inflation and the implications for interest rates could also weigh on sentiment. And what will happen when the stamp duty increase comes into force?
As things stand, Rightmove shares aren't exactly cheap either, changing hands for 22 times forecast FY25 earnings. That's a much higher price compared to the average UK stock.
However, like Rentokil Initial, that valuation is well below the company's average P/E over the past five years. I also think it is fully justified given the incredible margins, strong financials and market dominance of the £5bn cap.
And who's to say another acquisition strategy won't be adopted in 2025?
