By Joshua Peach and Joanne Tran
Australian shares smashed records in 2024 but the benchmark S&P/ASX 200 Index will finish the year with only a 6 per cent advance to show for it because for every Commonwealth Bank millionaire, there were plenty of lithium, casino and fast food land mines to humble the wisest investors.
Banking and technology stocks, which jumped 26 per cent and 47 per cent respectively, defined this year’s winners. If the post-Federal Reserve reckoning and resetting of 2025 interest rate expectations have further to run, those wins could be clipped as the bourse limps to December 31.
Puzzling valuations are the greatest challenge for the ASX heading into next year, and it is difficult to see another “major leg-up” in equities, according to Perpetual’s head of investment strategy, Matt Sherwood.
“I think the Australian sharemarket is going to have a pretty bumpy ride from high valuations, a lack of earnings growth and a lack of interest rate relief,” Mr Sherwood said. “Capital gains will be modest at best, and volatility will be more elevated.
“This sometimes happens when the market gets ahead of itself. And even though earnings have declined for the last two years, the market’s continued to push record high levels. There’s going to have to be some adjustment in the next 12 months so that prices can realign with the fundamentals,” he warned.
The market-friendly forces of softening inflation, central bank easing and Donald Trump’s decisive US election win laid the ground for some standout rallies in 2024 which it appears won’t be repeated. As investors contemplate what 2025 will hold, here are the stocks that fortune favoured – and three to forget.
Zip Co
Just two years after suffering the ignominy of being the ASX’s worst performer of 2022, fintech Zip’s resurgence has proved spectacular.
Up more than 300 per cent in the past 12 months, the stock is still 70 per cent below its record high of 2021 at the peak of buy now, pay later mania. What a ride.
Revenue gains and a more benign outlook for arrears are behind Zip’s market redemption.
Cue Zip co-founder Larry Diamond offloading about $100 million of his shares in early December, and the stock has cooled its run.
One fund that rode the rebound profitably was Wilson Asset Management. Portfolio manager Tobias Yao said much of Zip’s outperformance has been driven by results in the US market.
“Zip Co’s US business continues to take market share,” he said, adding that the outlook for the stock remained positive.
“We continue to see strong momentum in the business and see the potential for further earnings upgrades over the course of the year.”
Life360
Life360, the ASX-listed developer of family social networking apps, has tripled since the start of the year.
The San Francisco-based company, which is dual-listed on the Nasdaq, has enjoyed booming demand for its products, becoming among the most downloaded across US platforms. Life360’s share price reclaimed its record high in March and has sustained its valuation since.
Chris Prunty of Sydney hedge fund QVG said despite the temptation to take some risk off the table, the fund was convinced to remain all in.
“We have been very patient with the position and reluctant to take profits as the fundamentals are improving,” he said.
“We think location-sharing and ability to track people, pets and things will become an enormous category and 360 has the potential to become the leader in this space.”
Sigma Healthcare
A late addition to the podium, Sigma Healthcare has climbed steadily over the past 12 months in anticipation of its merger with Chemist Warehouse, a deal set to bring a $28.9 billion retail giant to the bourse early next year.
That excitement escalated after the Australian Competition and Consumer Commission formally approved the deal in November. Its endorsement has catapulted the stock to a 170 per cent return in the past 12 months, vindicating many of its backers such as hedge fund Kardinia Capital.
“It was pretty much straight after the announcement that we bought it, and we’ve just been building that position ever since,” said Kardinia portfolio manger Kristiaan Rehder.
“As more and more information came out, the more it confirmed our belief that the ACCC would wave that deal through – that gave us the confidence to build out the position.”
The losers
Liontown Resources
It’s only got worse for investors in lithium producer Liontown Resources.
Dwindling cash reserves and a rapid collapse in the price of lithium this year sent Lionaires (as Liontown’s fanatical West Australian investors were once known) scrambling. Down more than 60 per cent, Liontown is trading a long way from the $3 a share suitor Albemarle was willing to part with before changing its mind.
In November, the company slashed production plans at its Kathleen Valley mine in an attempt to survive a prolonged downturn in the commodity price.
Analysts have also rebelled against the stock. Citi downgraded the shares to “sell”, concluding higher capital expenditure and tight margins were adding to the company’s balance sheet concerns.
Likewise, UBS analyst Levi Spry – who also rates the shares a “sell” – is unconvinced by the case for a 2025 recovery.
“Despite a cooling in global demand prospects, we now expect [lithium] supply growth to undershoot demand [in 2025],” the broker said. “[Lithium] equities are still trading slightly expensive with growth still to be reconsidered and priced by the market.” He has a “sell” on lithium peers Pilbara Minerals and Mineral Resources too.
Star Entertainment
The dramatic near-collapse of Star Entertainment has withered the casino operator’s shares to just 20¢. It was a $5.50 stock back in 2018.
The issues facing the company are exhausting: a crackdown by regulators, cost blowouts at its Queensland development, a massive executive shake-up and unfinished business with its lenders.
No wonder the stock is down more than 60 per cent since the start of the year. It proved a value trap for the WAM Leaders fund, which wrongly bet Star could deal its way out of this mess.
Co-portfolio manager John Ayoub told investors this month: “We misinterpreted the risk to earnings coming from the regulation they faced and the sheer level of the complexity of the issues,” he conceded on an investor call. “We’ve taken the pain and managed down that position.”
Audinate
Audiovisual network developer Audinate was hammered by a series of profit downgrades as increased industry inventory and softer than expected demand from users hit results.
Despite the shares falling more than 50 per cent since January, some brokers think Audinate is a recovery story for 2025. One of those is Morningstar tech analyst Roy van Keulen, who thinks the company has the potential to become a real force in sound engineering.
“The market appears to believe the company’s current slowdown may signal a loss of competitive position or exhaustion of its addressable market,” he said after its latest profit warning. “We view the current slowdown as a combination of a resolved backlog of hardware products and a transition of the business from hardware-based sales to software-based sales.”
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