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The New Year is less than two weeks away, and while the ISA contribution allocation aligns with the financial year, January 1 will likely present a new opportunity to maximize portfolio returns. As such, 'tis the season' to plan a 2025 strategy. So, with that in mind, here are two ISA strategies to consider using in 2025.
Consistent contributions remain key
Writing in late 2024, it seems appropriate to highlight that trees do not grow to the sky. The US stock market has seen incredible growth over the past 12 months, but with valuations looking quite high, it may not be a good time to invest a large amount of money.
Instead, maintaining consistent investment contributions is a smart strategy. This approach, known as pound-cost averaging, involves investing a fixed amount at regular intervals, regardless of market conditions.
The benefits of this strategy include:
- Mitigate the impact of market volatility by averaging the cost of shares over time
- Encourage disciplined investment habits
- Reduce the stress of trying to time the market perfectly
Taking away the emotion
The second strategy involves using quantitative models to invest and staying as far away from investing based on pure emotion as possible. This should help investors navigate what is becoming an increasingly complex market environment, characterized by increased volatility and, at least in the United States, sky-high valuations.
And while investors may have been rewarded in recent years for choosing followers of the US stock market, it may be a good time to use quantitative models to find pockets of value within the market.
One action that continues to stand out to me is celestial (NYSE:CLS). The stock is up 250% over the past year, indicating it has very strong momentum. However, it currently trades at 25 times forward earnings and is expected to grow earnings at a compound annual growth rate of 28% over the medium term. This brings us to a price-to-earnings growth (PEG) ratio of 0.92. That's a bargain in the current climate.
The company operates two main business segments: Advanced technology Solutions and Cloud Computing Solutions, and has grown due to demand for lifecycle products and services in the cloud segments, many of them related to artificial intelligence (ai).
However, investments are not risk-free. Some analysts have highlighted that two-thirds of Celestica's business comes from just 10 clients, suggesting some degree of concentration risk.
However, it's hard to argue that this isn't a booming business. The rise of ai has allowed the company to move into higher-margin operations in cloud computing. The group now receives more than two-thirds of its revenue from the CCS segment, which grew 42% in the third quarter, while the ATS segment, which includes servicing the aviation industry, only grew 5%.
Momentum, growth, profitability and attractive valuation. This stock has a lot to offer. Celestica is my largest holding and I recently added it.
