Buy Hold Sell: 3 nice stocks and 2 on the naughty list for 2025

Anyone with children or grandchildren will no doubt have said at some point, "You'd better be good so that you end up on Santa's 'nice' list." Of course, the inference is that nice children get more presents. 

So, in the spirit of Christmas, this latest episode of Buy Hold Sell saw Henry Jennings from Marcus Today and Hugh Dive from Atlas Funds Management run the ruler over a handful of stocks and decide whether they've been naughty or nice. 

For good measure, they each also nominate a stock they see as being on the naughty list in 2025. It could be a name that has done well this year but won’t be able to maintain its good behaviour, or it could be a naughty stock that hasn’t learned its lesson.

Note: This episode was recorded on Wednesday 4 December 2024. You can watch the video, listen to the podcast or read an edited transcript below.

Edited Transcript

Hans Lee: Hello and welcome to the last edition of Buy, Hold, Sell for the 2024 season. I'm Hans Lee. Thanks very much for joining us and in the spirit of the holidays today, we're running the ruler over those stocks that have been naughty and those that have been nice. To do that, we're joined by Hugh Dive from Atlas Funds Management and Henry Jennings from Marcus Today. First up, let's start at the top end of town and by top, we mean the very top - the big Australian, BHP Group. This one has been a little bit naughty in 2024 with the stock down around 20% year-to-date, but will it be nice in '25? Henry, is it a buy, hold or sell?

BHP Group (ASX: BHP)

Henry Jennings (BUY): For me, it's a buy here. I have to say, I'm hoping. I guess its fingers crossed more than anything else, but there is that theory in the market that you buy BHP at 40 bucks and you sell it at 50 bucks, and it has been in that kind of trading range. Obviously it is dependent on some Chinese stimulus. We are about to enter a protracted, four-year war between America and China. And China has to respond in some way and I'm hoping that their response is to gee-up their own economy. They've got 17% unemployment in 18-24 year olds. They need to do something or that will turn into serious civil unrest at some stage.

So I think BHP could be a beneficiary of that. I know everyone's very bearish about iron ore, etc., but I think copper is an appeal. We know that on electric vehicles, et cetera, and copper is one of those materials, one of those commodities that does have a shortage going forward. Also I think the Samarco issue is a little bit behind them now. At least they've drawn a bit of a line in the sand there. So I think there is some positives for BHP, albeit, depending on the iron ore price, which I'm hoping even if it stays around $105, when the Aussie dollar stays at 65 cents, that's not a bad Aussie price for iron ore.

Hans Lee: Thank you sir. Hugh, I'm sure you know and viewers may remember earlier in the year, BHP had a couple of pretty ambitious tilts and Anglo American before withdrawing its offer. That six month standstill mandated by London's takeover rules has actually now expired and BHP could theoretically launch another bid. That aside, is it a buy, hold, sell for you?

Hugh Dive (SELL): I think it's a sell. The protracted trade war with the Chinese, I don't know what they're going to do. I don't think it's going to be the 2008 version or the 2015 ‘bridges to nowhere’, buy lots, transfer of wealth from the Chinese taxpayer to Australian miners. I think that's a bit of a hope, but I think the big concern is they're itchy fingers. We saw the BHP jet was fueled up and it was in South Africa in October. The standstill has come down. Looking at that acquisition, it would've been a terrible acquisition, would've been the largest acquisition on the ASX, buying a lot of rats and mice assets. Yes, there were a couple of good copper assets in South America, but a lot of assets in South Africa. They're even getting back some of the assets they got rid of in S32. It's going to be massively dilutive. There was going to be a $75 billion acquisition. I think they come back for that and I'd be very concerned owning BHP in that situation. 10% to 15% dilutive to earnings per share regardless of what happens to the iron ore price.

Zip Co (ASX: ZIP)

Hans Lee: Next up we're talking about Zip Co. This one has had a wild ride over its lifetime surfing the buy-now-pay-later wave both up and down before seemingly finding some solid footing. Hugh, is it a buy, hold or sell?

Hugh Dive (SELL): Well, I don't know it as well as Henry. Henry's done fabulously well out of it. It's up 425% this year. But when I see the founder selling $100 million dollars of the shares yesterday, he knows more about the stock than me, so I've got to take it as a sell.

Hans Lee: Okay, interesting. You are reading the register, as it were. Henry, the stock is up a massive 429% year-to-date, so it would be most likely on most people's nice list, but can they continue in '25? Is it a buy, hold or sell?

Henry Jennings (HOLD): I think it's a hold from here only because it's had such a stellar performance in 2024, but the US consumer is still spending money, Black Friday, Cyber Monday, etc. They're still spending money. What they have discovered is a whole new way of paying for things. Who would've thought, and it's called buy-now-pay-later, and the youngsters don't want to get involved in credit cards. Some of them can't get credit cards and Zip has done very well pushing into the US. There is a float, there is an IPO later this year of Klarna, which could provide a valuation/liquidity event to give everybody else a bit of benchmark in terms of how that goes. So that'll be interesting as well. But I think this is a US consumer story in changing habits and the consumer there wanting to buy stuff and finding new ways to buy stuff. Some of the regulatory issues are behind it and they've certainly done very well in controlling the bad debts and they are rolling out new products.

I've got a Zip account, I don't use it very often, but I've signed up just to see how it worked and get a feel for it. And it's useful, especially for budgeting purposes and you're not paying any interest and you're paying 25% on your credit card. Which one do you pick when you go to the cash register? I know which one I pick if I have a choice.

Incitec Pivot (ASX: IPL)

Hans Lee: Last one, before we get to your naughty picks, we're talking Invitec Pivot. Now Hugh, this one is actually on your Dogs of the ASX list. It fell 20% in 2023 before rising circa 25% this year. I'll come to you in a minute, but Henry we'll get your take first. Is it a buy, hold or sell?

Henry Jennings (HOLD): I think it's a hold. It's performed pretty well this year. They're looking, once again, at the fertiliser business and pushing that out. They've had some pretty good growth out of explosives, Dyno Nobel, which has been very good. They've got a relatively strong balance sheet as well. So I think for me it's a hold here. It's had a great run - Hugh has nailed it with his Dogs of the ASX.

Hugh Dive: I don't normally get them right.

Henry Jennings: A clock is right twice a day - I feel like that sometimes. But it has got a lot of positives to it and we are seeing a commodity… I mean, it may not feel like a boom for resource stocks, but there's still a lot of exploration going on, whether it's in coal, whether it's in... We've got President Trump saying "Drill, baby drill." That's not going to be quite so good for explosives, the two don't combine very well, but gold, iron ore, all these things, people have still got to do this. So I think for me it's a hold up here only because it's had such a good year.

Hans Lee: Hugh, can it continue to be nice next year? Buy, hold or sell?

Hugh Dive (BUY): I would still buy. They had a great result in November, but I think the quantum of the buyback, I think that's what people ignore. They're buying back over 15% of the balance sheet. In the market, every day, buying circa 10% - that is just lifting all the boats and also decreasing the divisor for future profits. The result in November was very good. Explosives - very strong, repricing that. And I think the Trump presidency will be very good for them. One of the high margins areas for them is quarrying construction. So that's blasting through rock, which goes into infrastructure projects. Not in drilling and things are looking good for the upcoming year. With the explosives earnings, they're pretty predictable. They have long-term take or pay contracts that are being priced upwards. Fertiliser, if they get that away, there'll be another buyback coming on. You can't fight against the tide.

Guest picks

Hans Lee: Yeah, absolutely. All right, well it's time for some fun to end the year. We've asked the gentleman to share with us a stock that could be on the naughty list this time next year. It could be a name that has done well this year but won't be able to maintain its good behaviour, or it could be a naughty stock that hasn't learned its lesson. Hugh, I'm going to start with you. What's your naughty stock as it were?

AMP Limited (ASX: AMP)

Hugh Dive: Well, for having done Dogs of the ASX for over a decade, I picked one of the stocks that has done quite well, that is a frequent feature in the Dogs, AMP.

They had a bad year last year, down on 20%. Things were looking pretty grim and then a big bounce back - 70%. And this is always a sort of a feast or famine, or famine to famine, a little bit of feast, but ultimately the business seems to get worse each year as they sell off bits of it. I think about what's left looking ahead, 2025, they've spun off the advice business. What does that look like in terms of flows? Because you've got to imagine some of the newly independent financial advisers, are they going to put a full suite of AMP products? So further outflows, the bank is subscale. We're earning 1% net interest margins with a 5% ROE. They've got great plans to become a business bank, but it's a very subscale thing. I think what's left, there's still a lot of overheads. I think plenty of scope for that to be naughty again in 2025. It has been many times over the past decade.

Hans Lee: Well it's an interesting call. It's up around 70% this year, but as you said, there are some long-term problems that do need to be resolved.

Hans Lee: There you go. Henry, what about you? What's your naughty stock for '25?

ResMed (ASX: RMD)

Henry Jennings: I'm going to be quite controversial and certainly go against Hugh. My naughty stock has been a nice stock this year. It is ResMed, which has had an amazing fall due to the GLP-1 concerns. And then everyone went, "Oh, you know what, that's not going to hurt it." And up they went again, margins were back, mask sales were back. Rest of the world sales were pretty good. Maybe not so good in the US, but the rest of the world sales were good and they brought out a new model, the Airsense 11, and they're bringing out a new mask as well. The thing that always troubles me with ResMed, is that they have to keep finding new people because not everybody wants to look like something out of the Dambusters or Top Gun because that mask is not great for your romantic sidelines, unfortunately. So people do tend to give up with the treatments and, as a result, they have to keep finding more and more people and they keep having to dress it up as something that's really high-tech. But at the end of the day, it really is just blowing air up your nose and into your mouth. It really is.

So I think that's a problem for them. And clearly they've recovered well from that GLP-1 scare, but I think that's probably now in the price that it's not going to be so scary. And now it's coming down to the more mundane. And when you look at, I know it's Black Friday and Cyber Monday, etc. When you look at the offers that are around, suddenly the Essence 11 has gone from $2,100 to $1,800 and you get a free mask and the 10 is now $1,200-$1,300 and you get a free mask. So the prices are coming down and these are from ResMed sellers. So I think maybe it's just topped out. I know we all love it and it's a great Australian success story. Interestingly, I found out that it was bought from Baxter.

It was a management buyout by the guy's dad from Baxter some years ago and they thought it was a great idea and ran with it and they've done extraordinarily well. I just think it's just getting a little bit up there for me. So '25, maybe a pause, a reset, and maybe we'll see more of these GLP-1 drugs come along. Getting cheaper as well, which is a big thing.

Hans Lee: Well, that's it for Buy, Hold, Sell for today and for this year. Thanks to the team who put the show together and to all the guests for your insights. Hugh and Henry, thank you very much. And, of course, to you, our audience, we wouldn't be here without you. Have a great summer. We'll be back in February with more Buy, Hold, Sell. In the meantime, you can subscribe to the Livewire Markets YouTube channel as well as our website and give this video a like, we're always adding great content even over the summer. Have a great time off. We'll see you soon.