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As a year draws to a close, it's easy to look back and reflect on those that got away. This year's stock market stars include Palantira stock I analyzed in detail back in January. I did not invest but the stock no longer exists. shot up 358%!
With less than a fortnight into the new year, my focus is on the opportunities the stock market could offer me in 2025.
Reasons to be cheerful in 2025
Could next year be bright for the stock market?
We have already seen the FTSE 100 The index hit an all-time high this year. They have also done so Nasdaq, S&P 500and Dow Jones Industrial Average indexes on the other side of the pond.
Not only is there clear momentum, but investor enthusiasm appears high and many companies have been reporting strong performance in 2024. If those positive factors can continue, perhaps helped by better economic performance in the US, We could see new records in the stock market in 2025.
Warning signs flashing
Still, as billionaire investor Warren Buffett says, investors should be afraid when others are greedy. I think it's notable that Buffett has been selling tens of billions of pounds worth of shares this year.
What happens in the US economy and, indeed, the global economy remains to be seen. In my opinion, the British economy has performed unconvincingly this year. It could see us slipping into a recession next year as easily as preparing for a new growth spurt.
My biggest concern about the stock market heading into 2025 is valuation.
Palantir's share price has skyrocketed, but it's now trading with a price-to-earnings ratio of 385. Even taking into account potentially stronger earnings in the future, that seems like a lot of bubble territory to me.
What I will do before the year ends
In my opinion, the UK market appears less overvalued than its US counterpart. But if the US suffers a downturn in 2025, I think the London market would surely be affected too.
I've been selling some stocks in my portfolio that I think seem overvalued. But I've also been buying lately, as I continue to see some stocks as bargains even as the broader market seems increasingly frothy to me.
That reflects my approach of buying individual stocks rather than trying to “buy he market”, for example, by investing in a tracking fund.
As an example, a stock I bought in the last month is JD Sports (LSE: JD).
The FTSE 100 retailer has had a tough year on the stock market, starting with a profit warning in January.
It is down 39% so far this year and 40% in five years. Combined with a dividend yield of less than 1%, it may not look like a very attractive stock to buy.
I see risks here, such as the cost and execution risks of the company's aggressive store opening plan at a time of weak consumer confidence.
But I think JD Sports' current share price could prove to be a bargain in the long term. Demand for sportswear is likely to remain high and the company's global operation provides it with economies of scale. It has a strong brand, a large customer base and exciting growth plans.
