12 contrarian calls that may just surge in 2025

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Note: These interviews were taped Tuesday December 10 2024. 

Sometimes, the best investment ideas are the ones that either no one thinks of or the herd has left for dead. Two years ago, Australian property trusts finished the year down 20% as the fastest interest rate hiking cycle in 40 years left a scarring impact on valuations. But if you were, to paraphrase Warren Buffett, being greedy and buying up REITs in 2023 when others were fearful, you would have finished up with the second best-performing asset class in the following year. 

And of course, who could forget some of the bravest calls in all of investment folklore. Once upon a time, short US housing was a massive bet. But Michael Burry and Steve Eisman are now famous for it. Or buying British Pounds and converting them to German Deutsche Marks was a very brave way to short the British economy. But thanks to his research and his guts, George Soros made a $2 billion profit and earned the moniker "the man who broke the Bank of England."

With this spirit in mind, we've asked 10 young-gun stock pickers to tell us about a contrarian investment they are backing in 2025. The stocks they mention span the full length of the consumer - from long-forgotten retailers to luxury brands known the world over. 

Other honourable mentions include growth stocks which may have been forgotten about in this AI-induced rally and four names linked to the commodities trade, which must say something about where fundies are finding the most value right now.

To find out what the stocks are, watch the video, listen to the podcast, or read our edited transcript below.

Note: We would like to thank the fund managers listed above for sharing their top ideas for 2025 in the spirit of the Outlook Series. All of the fund managers featured in this series run diversified portfolios and do not invest solely in the stocks mentioned below. This list is not, nor is it intended to be, a set of recommendations. Please do your own research and seek advice from a professional before making any investment decisions of your own. Past performance is not a reliable indicator of future returns.

EDITED TRANSCRIPT

We're known to love our contrarian plays, so this is one that, I think, is ultra-contrarian, but we're going to go with it. And that's Healius. The ticker is HLS. It is the second largest pathology company in Australia. They've got about $1.3 billion in revenue. Through COVID, they were obviously a massive beneficiary. You had COVID testing volumes at all time highs. 

As those volumes have normalised, you've seen their earnings collapse and it's been the case across the industry. But I guess this is what the opportunity is. It's just recently de-geared the balance sheet. It's sold its imaging business for $800 million, so it leaves the business with about $400 million of net cash. 

If you add to that the franking credits, which are obviously of value, then the market's only ascribing a third of its revenue in value. It's only valuing the business at $400 million today. 

Despite the chequered history, and despite what's happening out there, I think earnings can improve dramatically. They're guiding to a better second half and there seems like a lot of value in this business at these current levels. 

Rachel Folder, Pendal Group - ARB Corporation (ASX: ARB)

You're probably going to laugh when I say that it's ARB because ARB has been historically very well regarded. It's a high quality business. 

But where I stand differently on this one is that I think they tend to be genuinely good performers. People are missing that, while the Australian market might be seeing a little bit of weakness right now in the short term, there's a huge story going on in the US. 

In just this last year, they've made some strategic investments in channels to market so they can increase their sales over there. They've invested in new management who are doing a great job. They're investing in R&D facilities so they can generate products just for that market. And I think they've also been great allocators of capital over time. So while it is a little bit soft at the moment, I think it should come good through 2025. 

Sam Ruiz, T. Rowe Price - Corebridge Financial (NYSE: CRBG)

A contrarian stock we like for 2025 is a company that we think has just gone through a lost decade. This is a fantastic growth company trading at a deep value price - and it's life insurance. What's happening at a a company we really like called Corebridge is that it was spun out of AIG in 2022. They're one of the leaders in life insurance and annuities in the US and they're able to invest these longer-term maturing bonds that are rolling off from lower rates. 

For every single month or quarter that rates stay higher, you can just imagine their portfolio yield is increasing. Also, for the entire US annuity sales that we're seeing in that market, we've actually seen those double in the last four years. 

If rates stay higher, we think this is a company that used to trade pre-GFC in a normal interest rate environment around 12 times, and it's actually stuck in this seven to nine times [range]. So earnings could double basically in the next five years, and we think that we're going to see potentially even a 50% uplift in valuation. 

Jessica Farr-Jones, Regal Funds Management - DUG Technology (ASX: DUG)

There's a stock in our portfolio, which we like, but has unfortunately had a profit downgrade and retraced a lot recently. The stock is DUG Technology. It had an amazing run coming out of COVID. The stock was up about 400% on really strong earnings growth. And just for reference as to what it does, it has high performance computing data centres around the world and its primary use case is processing seismic data for oil and gas companies. 

So the revenue is slightly more lumpy given it's effectively an oil and gas services company. We think that this is a fantastic founder-led company. We think that the lumpiness is more a timing issue than anything structural. In fact, the company has said the pipeline has never been bigger. They expect it to convert in the second half of this year, and they're very excited about opportunities in the Middle East as well as opportunities for other segments of the business [including] immersion cooling and HPC mobile units. 

The business is currently being valued by the market at only 6x EBITDA, and this is looking backwards. That is, six times the normalised EBITDA that they printed in FY24. We think this is far too cheap and there's enormous optionality in the other parts of the business. 

All it will take is one Middle East win, one win in their immersion cooling business, or [one win in] the Doug Nomad HPC business to trigger a significant rerate here. 

James Barker, Ellerston Capital - ServCorp (ASX: SRV)

One stock that we think has been overlooked by the market is Servcorp. The ticker is SRV. Servcorp is a provider of flexible workspace solutions. It's effectively a more traditional and profitable version of WeWork. 

What's really changed in this business since 2019 is that revenues are expected to be broadly flat over the five-year period, but what's happened is profitability has been able to double. 

If you look at the business at the moment, it's about a $500 million market cap and about a quarter of that is in cash. So, that's about $125 million of cash with no debt on the balance sheet. They've got guidance in the market to deliver $65 million of profit before tax, which is about 15% growth on last year. Trading on those numbers, it's about 9x P/E or about 7x if you back out the cash. The CEO is about 80 years old but he owns 50% of the business which he started 50 years ago. He has also bought stock three times on market in the last month. We think there's more there in ServCorp.

Elise Kennedy, Schroders - Seek (ASX: SEK)

We are leaders in contrarianism, so I'm going to run with Seek. I feel as though the buy side isn't appreciating it and it's not reflected in the share price at the moment. They're just too focused when it comes to the jobs market, whereas already we're starting to see that the jobs market is holding up better than expected. Then, they've got the cost base too with this stock. 

But for us, they've just come through the peak of their unification and the benefits that might come through on that. You are also seeing potential for the growth fund, which to us, is not valued by the market. They're coming up to a period of time where that has to be realised otherwise the founders aren't going to get their benefits and their performance fees. 

There's a few components on that front where that remains a name that is not yet being appreciated, but hopefully will in time.

Zoe Middleton, Platinum Asset Management - Compagnie Financiere Richemont (SWX: CFR)

Richemont is an interesting one. They own Cartier, the jewellery and watch brand, and they're benefitting from a market shift from unbranded to branded jewellery. They're also divesting their unprofitable e-commerce business, which should make them more profitable and focused going forward, and they're in a better place to manage their inventory during this downturn than they have been in previous ones. 

Lucas Goode, IML - Kelsian Group (ASX: KLS)

Something that's certainly a bit unloved, and we've worn some pain on it over the past 12 months, is land and marine tourism operator Kelsian. It had quite a torrid 2024, with some real own goals, [a lack of] capital spending discipline, and also [had issues with] market communication. 

But we think that the market's really thrown the proverbial baby out with the bath water with this stock. 

The core Australian bus business remains a fantastic business. It's high returning, it's capital efficient, and infrastructure-like in nature. You've got these long-term stable recurring inflation-protected revenues. That business is actually still performing well.

And the thing they acquired in the US, All Aboard America, is also performing ahead of expectations. It's really been clouded by some of the noise that's been happening at the group level. So heading into 2025, we know that there's a strategic review going on. The board and management are being accountable. We expect to streamlined Kelsian, a more cash generative Kelsian and certainly a Kelsian that trades on more than its current level of around 6x EBITDA.

Nick Guidera, Eley Griffiths Group - Myer (ASX: MYR)

The secret sauce that Myer probably has is 7 million Myer One customers which have those little black and white cards that, 15 or 20 years ago, your mum and dad might've had one in their wallet. 

They still exist, and I think on last count, there's more than 4.5 million that are active. That loyalty is pretty amazing for a store that's potentially lost its way in terms of what does it sell and what it stands for. 

The other secret ingredient that Myer has is a new executive chairperson, who is Olivia Wirth. She was one of the architects behind one of the most successful loyalty programmes at Qantas in the last decade. She's coming here with that loyalty background to put a fresh set of eyes on how they can transform those really loyal customer base into buying more from Myer while also looking at productivity improvements and opportunities. 

Todd Warren, Tribeca Investment Partners - Champion Iron (ASX: CIA), EOG Resources (NYSE: EOG), Karoon Energy (ASX: KAR)

The question we asked the fundies: What is a contrarian idea that you like for 2025?