5 ASX stocks to own as the market keeps rallying

We believe the outlook for the next year remains constructive. Recession fears have now receded, corporate earnings are forecast to grow, interest rates are set to moderate, and the narrow rally we saw in 2024 is set to broaden in 2025.  

In the first phase of a rate-cutting cycle, revenues begin to recover on reduced cost bases, which combined deliver expanded operating margins and profitability. 

We expect 2025 to be a good year for equity investors. We continue to see value in several sectors, including financials, software, and USD earners. 

Here are five stocks that are well-positioned to outperform in 2025:

#1  - Cyclopharm (ASX: CYC)

Cyclopharm is a radiopharmaceutical imaging group. Its flagship lung imaging product, Technegas, has been approved by the FDA for commercialisation and sale in the US for the diagnosis and management of Pulmonary Embolism (PE).    

Importantly, the company has also secured funding for the product's use in the US via Transitional Pass Through (TPT) reimbursement.  As a result, Cyclopharm expects the size of the US nuclear medicine PE market to double from US$90M to US$180M within the next 3-5 years.   

In late 2024, Cyclopharm finalised an agreement with the US Veterans Administration for the use of Technegas, providing immediate access to 120 Veterans Affairs hospitals with nuclear medicine departments.  The most recent update from the company confirmed 17 installations are now operational in the US.  The company is targeting over 300 installations in the US by the end of CY25.  

As the company executes its US expansion plans, we expect positive operating cash flow and EBIT by mid-2025.  

#2 - Emeco (ASX: EHL) 

We believe Emeco is well-positioned to exceed market expectations in the short to medium term.  The business is on track to deliver improving free cash flow and an ongoing recovery in earnings through FY25.  Management guidance for FY25 is for at least $300m in operating EBITDA.  The implied exit run-rate from FY25 suggests upside to market expectations in FY26.

We expect a range of strategic initiatives, including labour cost savings, repair & maintenance savings, fleet optimization and corporate overhead reductions, to contribute to a material improvement in Emeco's Return on Invested Capital (ROIC) over the medium term.  

We believe Emeco's valuation at current levels is compelling and expect the stock to outperform as profitability and investment returns improve.

#3 - Fisher & Paykel Healthcare (ASX: FPH)

We continue to believe that Fisher & Paykel's product development strategy is changing clinical practice and driving increased product demand within its core hospital humidification market.  

As a result, we expect strong earnings growth and improving profitability to drive share price outperformance over the long term.  A strong 1H FY25 recently delivered +18% revenue growth and expanding gross margins.  Ongoing overhead improvements are expected to deliver further benefits in the 2H of FY25.

In the short term, FPH is set to benefit from a stronger USD.  An estimated 50% of revenues and 50% of costs are generated in USD and NZD, respectively.  As a result, earnings will benefit from the recent USD strength vs the NZD.  

Recent industry reports confirm that the prevalence of seasonal respiratory virus in the US has increased.  Specifically, most US states are reporting "high" or "very high" levels of patients with flu-like symptoms.  FPH's hospital high-flow oxygen business is well positioned to benefit from increased hospitalization rates associated with the seasonal spike in the US.    

#4 - SKS Technologies (ASX: SKS)

SKS Technologies provides design, supply, and installation services for the domestic audio-visual, electrical, and communication services sectors.  The company is well-positioned to deliver strong earnings growth associated with rapidly expanding demand within the data centre sector.  Investment trends within the sector are well-established, and demand is forecast to exceed supply over the medium term. 

Recent contract wins provide us with confidence that current 'work in hand' supports the company's revenue guidance of $260M and NPBT of $17M in FY25.  Growth has been impressive over the last several years.  SKS revenues in FY23 were $83M.  Improving scale and fixed-cost leverage is expected to deliver further operating margin expansion over the next two years.  

SKS is a founder-led business with a strong and experienced management team.  Industry relationships within the electrical and telecommunications sector are long-standing.  

We believe the SKS valuation is compelling given the robust earnings growth profile and manageable business execution risks.  

#5 - ZIP Co (ASX: ZIP)

Zip Co provides digital retail finance and payment services to consumers and SMEs in Australia, New Zealand, Canada, and the United States.  FY24 represented a turnaround year for the business post a strategy refresh and several new key management appointments within the company.  A combination of cost control and strong revenue growth delivered significant operating leverage in the last year.  ZIP delivered record profitability and a balance sheet re-set in FY24.

We expect the company to deliver strong growth in FY25. We see many opportunities for ZIP's US business to gain increased scale and additional customers over the medium term. ZIP's new "Pay in 8" US product is expected to deliver ongoing customer growth and improve profitability.    

Zip recently confirmed a strong 1Q FY25 performance. US TTV and revenue growth were up +42.8% and +43.9%, respectively.   

We believe ZIP product demand has continued to be high through the Cyber/Christmas trading period both in Australia and the US.  We expect ZIP to meet or exceed market expectations and the upcoming 1H FY25 result season.  

The Level 18 Fund

The Centennial Level 18 Fund delivered strong outperformance in the last year. For the year to December 2024, the fund delivered a return of +21.3% after all fees.

Calendar year 2024 was a big year for global equities. Technology-driven artificial intelligence (AI), moderating inflation and central bank interest rate cuts broadly drove the rally in global markets during the year. Notwithstanding the strong market returns in 2024, our bullish outlook for the Australian market in the next year is unchanged.

Since inception (2012), the Level 18 Fund has delivered a +12.7% net return per annum. We expect the Fund’s performance track record to continue in 2025 at a similar level. 

Managed Fund

The Level 18 Fund (Platform Class)

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