Despite a strong start, the FTSE 100 climbed only 5.8% in 2024. Most of those gains were made in the first four months, so naturally my top-performing stocks were ones I’d held since January.
After making my final-year portfolio assessment for 2024, I identified two stocks that powered me through the year: 3i Group (LSE: III) and Marks and Spencer (LSE: MKS).
They weren’t the best-performing stocks on the Footsie last year but they are around the top 10. Did they just have a lucky year or is this growth sustainable in the long-term? I decided to investigate.
A retailer in recovery
Marks and Spencer bounced back in late 2022 after a long period of losses. It’s continued performing well over the past two years and is now at an eight-year high.
Both its food and clothing sectors improved following a business overhaul. Earnings per share (EPS) were up 50% in last year’s final report and are expected to climb further to 29p per share. Revenue’s expected to reach £13.77bn in the final results this March, up from £13.11bn last year.
For 2025, it’s prioritising digitisation and expansion into new international markets. However, it faces stiff competition from competitors and risks dipping again if inflation spikes. It must continue to find new ways to offer competitive pricing without threatening its bottom line.
It’s price-to-earnings (P/E) ratio’s currently at 13.8. It’s expected to decline to around 12 as earnings increase, below that of Tesco. There may be a sales slump following Christmas but I expect growth will pick up again in February.
Despite a rocky past, Marks and Spencer remains a favourite of mine in 2025. I expect another year of solid performance with steady growth, so I will continue adding to my investment.
A soaring private equity firm
While 3i Group’s technically a private equity investor, it also benefits largely from retail. The company’s the majority owner of Action, a chain of non-food discount stores across Europe. Soaring sales have helped boost 3i’s earnings, pushing the share price up 167% in the past two years.
For the nine months to September 2024, Action’s net sales reached €9.56bn with an operating EBITDA of €1.344bn. But Action isn’t the only winner, with 94% of assets in its private equity portfolio experiencing earnings growth in 2024.
Looking ahead, 3i doesn’t plan on slowing. Key assets such as Action will continue to drive growth while it’s actively exploring new opportunities for investment.
However, it’s important to remain mindful of potential challenges. Market volatility and economic uncertainties are one thing but my main concern is the uneven weighting towards Action. If another discount retailer pops up and captures the market, 3i would take a big hit.
What’s more, some investors have questioned 3i’s valuation methods for Action, suggesting it may be overinflated. 3i has refuted the allegations but it’s something to keep an eye on.
However, with a strong track record and solid investment thesis, I think it’s well-positioned to continue the strong performance. It’s part of a portfolio I plan to continue drip feeding throughout 2025.
This post was originally published on Motley Fool
