14 ASX stocks this outperforming fundie is eyeing in 2025

Seneca Financial Solutions' Ben Richards may be tired of hearing the question ‘what is your top stock pick?’ from his clients, but he is certainly happy to share a wide variety of large and small cap ASX stocks he likes for the coming year.

As he puts it, “if we believed the best risk-adjusted returns could be achieved by owning just three “top stock picks”, that’s exactly what we would do.”

For Richards, diversification is absolutely critical – he believes in all of the 30 stocks in his portfolio for different reasons and they hold a different purpose in his portfolio. It’s a focus that is paying off in the Seneca Australian Small Companies Fund generating one year returns of 34.49% at 30 November this year, compared to the 19.88% from the S&P ASX Small Ordinaries Index.

Richards is seeing plenty of opportunity in the market, pointing to surprise opportunities in areas like mining royalties and via increased activity in capital markets. While he believes there are still gems in the large-cap space for those who dig, he sees small caps as having better prospects.

“Small caps, however, tend to outperform in a falling rates environment or bull market, making them particularly appealing right now,” he says.

In this Rapid Fire interview, Richards discusses standout large and small caps, his best and worst decisions of the year, why mining royalties companies could have the X-factor and where he’s looking for income. In the spirit of fun, he also shares his own personal goals for the coming year.

What has been the most important theme for Australian investors in 2024?

Be invested. 

Despite geopolitical tensions, a divisive US election, and inflation, the ASX200 has returned 16% (incl. dividends) year-to-date at the time of writing. The key question we've asked clients this year is "ask yourself, what could go right?"

One of our most successful investment themes has been identifying companies at the point of inflecting profitability. We believe this represents a reliable and sustainable source of alpha across all market conditions. While not the only source of alpha, it has consistently proven to be a highly effective strategy. These are businesses transitioning from high-growth, cash-burning phases to becoming high-growth, profit-generating enterprises.

Companies with scalable business models and increasingly higher incremental returns on capital have been among the top performers in the market. In our small-caps fund, this approach has delivered strong results with investments in companies like RPMGlobal (ASX: RUL), PointsBet (ASX: PBH), and Catapult (ASX: CAT).

What has been the most surprising development and what, if anything, did you do about it?

One of the most surprising developments has been the strength and persistence of the gold price rally. While we anticipated a rise in gold prices, the magnitude and duration of the rally exceeded our expectations.

We’ve maintained a cautious view on certain assets held by gold majors, particularly those in production, and the valuations assigned to them. As a result, we’ve strategically increased our exposure to more compelling gold-focused investments such as De Grey Mining (ASX: DEG) and Imdex (ASX: IMD).

To manage potential downside risks in the event of a gold price correction, we have focused on companies with strong takeover potential. 

This strategy provides dual benefits: exposure to the upside in a robust gold market while offering protection in weaker conditions, as strategic assets become more appealing to acquirers, enabling us to potentially generate outperformance in a down market.

A prime example of this approach is De Grey Mining, which is developing a large-scale gold project in the Pilbara region of Western Australia. With an expected annual production of 500,000 ounces of low-cost gold, De Grey's scale, cost efficiency, and strategic appeal positioned it as a standout takeover target. This view was validated by Northern Star Resources' (ASX: NST) recent $5 billion buyout offer. We wrote about our process for identifying DEG here (as well as 7 other takeover candidates).

We also increased exposure to companies that benefit from a rising gold price, including picks and shovels plays like Imdex, which is market leader in drilling tools/technology and has around 50% exposure to gold. We think Imdex is well positioned to have a big 2025 as trickle-down beneficiary of expanding exploration budgets.

Where are you seeing the best opportunities in the small cap space and are there still opportunities in large caps?

Opportunities exist everywhere—it’s just a matter of finding them.

In large caps, while the consensus is that many are expensive, there are still gems if you dig deep enough. 

Within the ASX200, three standouts trading near 12-month lows are Megaport (ASX: MP1), a cloud connectivity provider; Smartgroup (ASX: SIQ), a novated leasing and salary packaging specialist; and Karoon Energy (ASX: KAR), an ultra-cheap oil producer.

Small caps, however, tend to outperform in a falling rates environment or bull market, making them particularly appealing right now.

What was the best decision/investment you made in 2024?

Rather than revisiting our publicly documented winners (and a few losers!) from this year, I’d like to highlight a couple of personal and professional milestones that I’m particularly proud of.

First, I’ve had the privilege of spending the last couple of years working at Seneca, a decision that has proven rewarding, working with Luke Laretive and the team on a daily basis. One example of the many opportunities I’ve been fortunate to have is engaging with high-quality, engaged audiences such as the Livewire community - a privilege that we don’t take for granted. I’m pumped about what the future holds for Seneca, and reflecting this, have become a shareholder in the business this year.

Another exciting development is the launch of Good Research, our subscription-based investment research service. It’s been designed to offer individual investors access to our best small-cap ideas, even if they don’t qualify as wholesale investors. The name is deliberate—we aim to stand out by providing truly high-quality investment insights, supported by rigorous analysis and a disciplined approach. Importantly, we’re keeping the service exclusive, limiting subscriptions to maintain quality, rather than chasing the mass market.

What was the worst?

Banks vs resources.

In large caps, being underweight CBA has been the biggest relative drag on performance. But the reality is we enact a consistent, repeatable investment process. And CBA trading on >3x book value, growing profit at 1-2% per annum, and re-rating purely on multiple expansion from fund flows does not fit our process. Valuations don't expand forever.

Banks have outperformed by resources by 51% year-to-date. 

We are starting to see some attractive value emerge in the resources space, particularly in iron ore and lithium. Australia has a natural advantage (geological + infrastructure) in the Pilbara region and is well positioned to capitalise on an upswing in commodity prices. Companies such as BHP (ASX: BHP), Rio Tinto (ASX: RIO), Pilbara Minerals (ASX: PLS), and Wildcat Resources (ASX: WC8) stand out.

How are you adjusting income portfolios in anticipation of rate cuts in 2025?

We’re already positioned. 

Our defensive and aggressive portfolios have benefited significantly from long-duration exposures over the past 10–12 months, delivering value to our income-focused investors. This has been achieved by shifting out of hybrids and floating-rate notes and into fixed-rate securities. 

While yields are comparable, fixed-rate securities offer superior capital gain potential in a falling interest rate environment.

From an equities perspective, we prioritise total return, combining capital growth and income. Our process is largely interest-rate agnostic—we deliberately avoid high-debt companies and those reliant on rate-sensitive consumers. 

For example, our small-cap fund boasts an average Net Debt/EBITDA of -0.1 (net cash), significantly outperforming the XSO index average of 1.3x, which indicates it would take years for the average company to service existing debt through earnings.

Companies like XRF Scientific (ASX: XRF) and Catapult can continue to sell their products and gain share in their market niches, regardless of whether interest rates move up or down by a percentage point or two.

What is one question you are fielding the most from clients and how do you respond?

"What’s your top stock pick at the moment?" is a question I hear often—and honestly, I’m not a fan of it. Our portfolios consists of around 30 well-researched ideas in both small cap and large cap Australian shares. I’ve personally invested my own money into our funds, and one of the key benefits of investing in a fund is diversification. If we believed the best risk-adjusted returns could be achieved by owning just three “top stock picks”, that’s exactly what we would do.

While I generally love talking about stocks, I often remind clients that the value we provide isn’t just about picking a single winner—it’s about constructing a portfolio designed for sustainable, risk-adjusted growth.

We don’t understand why people try to extract a piece of our intellectual property when they can access the entirety of it.

What is the market not paying attention to that could have an outsized impact in 2025 (what’s the sleeper/X-factor?)

We think increasing capital markets activity is a key source of alpha in 2025. We recently profiled the M&A landscape and our top takeover targets in this (probably too lengthy) wire, and judging by our inboxes, we’re starting to see some green shoots emerging in the IPO market. Access to high quality deal flow is one advantage we are privileged to be afforded as institutional investors.

Another under-the-radar area we’re excited about is mining royalties—a business model that’s hard to beat. Why? Because you get paid without lifting a finger. Royalties offer the best leverage to a commodities upswing without the risks of dilution or cost inflation.

In the ASX-listed space, Deterra Royalties (ASX: DRR) is the largest player, but Red Hill Iron (ASX: RHI) stands out as one of the most compelling opportunities. It provides exposure to Mineral Resources (ASX: MIN)’s Onslow Iron Project, which is ramping up production and playing a critical role in reducing MinRes’ debt. Despite its potential, nobody seems to be paying attention to Red Hill—yet.

What big goals are you setting for yourself in 2025?

• Win a mixed netball premiership - grand final is tomorrow (at the time of writing) – wish us luck!
• Break the phone-checking habit first thing in the morning (the overnight market action can wait!)
• Feature on the illustrious Livewire Buy Hold Sell
• Finally bulk up—a goal that’s been on my New Year’s resolution list longer than I care to admit.
• Travel to see the northern lights—bucket list item, no excuses this year.
• And, most importantly, win the Seneca footy tipping competition—bragging rights are on the line!