New Year Naps - Top Stocks for 2025 with a segue to the QVM Portfolio

Happy New Year to all subscribers! While Santa has not brought his usual rally to UK markets over recent weeks, I do find myself optimistic for 2025. Everyone is miserable about the prospects for the UK economy, but all the doom and gloom seems priced in. The UK is cheap, and the smart money has been picking up bargains with one in twenty UK stocks receiving takeover bids through the year, and international investors circling. Good quality, value stocks have been appreciating and, aside from the dismal AIM, all the major FTSE indices rose in 2024. The NAPS Portfolio ended 2024 up almost 20% over the year, significantly beating its benchmark, the FTSE All Share, which managed 6%.

We’ve now completed a full decade of the NAPS Portfolio. It’s been a wonderful journey of rather lazy, but extremely effective investing. Ten years of applying this disciplined investment process have generated 13% annualised returns, beating even the S&P 500 by only investing in UK stocks. I wrote an extensive review with lots of data visualisation from this decade of outstanding returns, which you can catch up on here.  

Looking to the QVM Portfolio of the future

I’d mentioned that we might stop the NAPS Portfolio, as we are aiming to develop a more complete suite of model portfolios for subscribers. Many of you were rather dismayed, and encouraged me to continue and publish another portfolio for 2025. Your wish is my command, but let’s just say that this is under review.

We’ve learnt so much over the last ten years. Our data research projects have validated many core ideas in stock market investing, and a continued reading of third-party research has even more so. Just to illustrate the point, we know that we should sell immediately on a profit warning, that there are certain traits of stocks that make them more likely to be multibaggers, and that stocks ahead of expectations are more likely to continue in the same direction. These are all ideas I use in my own personal investing.

Should we be satisfied with the NAPS Portfolio results, when the rules are only applied once annually at a rebalance date? Can’t we develop and apply a more disciplined rule-set that can enhance returns and lower drawdowns, by consistent management on a month-to-month and week-to-week basis?

It will be interesting to see if we can. Ultimately, the NAPS Portfolio sets an annual benchmark. It’s a solid, dependable, cost and time-effective way to run a high StockRank portfolio. James Montier once said in a paper titled “An Ode to Quant” that models set a ceiling from which we detract performance, rather than a floor to which we add. So we may find that we can’t beat the NAPS, but that shouldn’t stop us trying.

The 2025 NAPS Portfolio is likely to seed a new model portfolio with a working title of “The QVM Portfolio”. The rules will be developed over the coming months. So watch this space.

Synthesising the “perfect stock” with the 2025 NAPS

This year’s NAPS portfolio is based on similar rules to last year, marginally adapted from the original. There are no frills here, and a more dynamic approach may perform better - so riff as you wish if you are using these as a basis for your own rules. These rules are not meant to be prescriptive. Many try sorting on different ratios, with different numbers of stocks, different markets, different cutoffs, and different filters - there are a few ideas in the “StockRank Strategies for Systematic Investors” chapter of my ebook “Investing with the StockRanks” which is well worth a read. 

This year’s rules are:

• Sort by StockRank descending.
• 20 stock portfolio.
  • 2 from each sector, but just one from Telecoms and Utilities.
  • Top up with the next highest-ranked stock from 2 of the other 8 sectors.
• Minimum market cap of £20m, and max bid-ask spread of 7.5% (750 basis points).
• No investment trusts or funds.

The bid-ask spread is the difference between the sell price and buy price for each stock - and is the biggest cost of trading. 7.5% appears way too high, but in reality I’ve set this cut-off to keep the average spread of the positions reasonable (at 1.3% ). This cuts out one or two high ranked stocks that are hard to trade, but does still let in a couple above a 5% spread. Just beware that if you have a large portfolio size, it can be hard to trade illiquid stocks.

The average StockRank of the resulting portfolio is 97, with high Quality, Value and Momentum across the board, as you’d imagine given the rules. I like to think of the NAPS as a high quality, “Value and Momentum” portfolio.

The underlying portfolio statistics are really remarkable. On average, each stock has grown earnings by 42%, has a P/E ratio of 8.7, a return on capital of 16%, margins of 14%, has beaten the market by 19% over 12 months and yields 4% in dividends. If I could offer you an individual stock with all these traits you might bite my hand off, but I’ve tried screening for it and it doesn’t exist - have a look here. You can’t find the perfect stock, but you seem to be able to synthesise its characteristics as a portfolio. I’ve written before about this portfolio construction alchemy - and it still amazes me today.   

The portfolio would have to rise by 40% to reach the average valuation of stocks in the UK market (from a P/E of 8.7 to a P/E of 12.2). We just have to have faith that the invisible hand of Mr Market will do its work. Over the years, he’s always seemed to.

The Stocks

I’ve been generating this portfolio on numerous occasions over the last week, and some stocks do slip in and out depending on the daily process. If you are interested, the stocks that just missed the cut on today’s numbers include: PayPoint (LON:PAY) , Altyngold (LON:ALTN) and  Enwell Energy (LON:ENW) , and for all I know one of those might be a massive winner in 2025. So DYOR!

I’m biased to a few stocks of course, as I love a good story too, so I’m glad to see the portfolio include Yu Group, Journeo and the Gold miners. Nonetheless, I’m not expecting fireworks from this portfolio, though I rarely do. It’s full of buy-backy, dividend payers, rather than growth stock stars.

There are a few sin stocks in here that ESG investors may wish to avoid, but the beauty of the NAPS is there’s nothing stopping you from adding a moral overlay. It’s just another rule. Maybe the oil sector is doomed, and will always trade on low valuations, and the two businesses exposed to smoking products - Imperial Brands and Supreme - may not be for everyone.

I’ve done my best to provide a brief note on all the businesses below, but I don’t pretend to be an expert on any of them. It would be great if the community can fill in the gaps. If I’ve made any errors, please do correct me and I’ll edit in improvements!

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Basic Materials

Two gold miners, illustrating the strength in the gold price and the great profits being generated.

Metals Exploration (LON:MTL)

StockRank: 99, Market Cap: £92m, P/E: 4.4x, Yield: 0%

Metals Exploration mines gold in the Phillipines from its Runruno mine. It was an absolute star in the 2024 NAPS rocketing 104% through the year, and returns again for 2025. The company has been spitting off cashflow with the rising gold price, recently becoming debt-free, and buying in the rest of the Runruno mine. It’s also been expanding its portfolio acquiring YMC which has further exploration licences. In early December they announced a takeover bid for Condor Gold which has been recommended by Condor’s board.

Serabi Gold (LON:SRB)

StockRank: 100, Market Cap: £85m, P/E: 2.4x, Yield: 0%

Serabi Gold is a Brazilian-focused gold miner, which had an even stronger run in 2024 than Metals Exploration. In its 9 months results to September 2024 it reported revenues up 47% year on year and an 280% improvement in post-tax profits. These are the kinds of growth numbers we’re getting used to in the gold sector, but still these businesses languish on extremely low P/E ratios. Cash stayed level year on year at $11.5m, which reflects the ongoing investment Serabi is making in the development and ramp up of the mines and plants at its Coringa and Palito mines.  Serabi is also one of our 12 stocks for Christmas 2024, and you can read up Mark's review here. 

Consumer Cyclical

A couple of big retailers, which worries me given the doom loop of Rachel Reeve’s national insurance hits. Or does that create the opportunity?

Currys (LON:CURY)

StockRank: 99, Market Cap: £1056m, P/E: 9.4x, Yield: 1.88%

We all know Currys well as a mature, ominchannel retailer of tech products, operating online and through 719 stores across the UK, Ireland and Nordics. It disposed of its Greek business earlier in 2024 to concentrate on these larger markets. It reported “strengthening performance” in its half year results in December, and still believes it will hit its profit targets despite the national insurance rises. Graham reported on the latest results in the Daily Stock Market Report here, with an Amber/Green rating. Dividends look to be coming back in 2025 and the market may be warming to the business again.

Kingfisher (LON:KGF)

StockRank: 98, Market Cap: £4484m, P/E: 11.2x, Yield: 4.99%

Kingfisher has over 2,000 stores across Europe, and you may know it best through its ownership of B&Q and Screwfix. Kingfisher does talk a good game of £120m cost reductions and a restructuring of its French operations to support future growth, but this is another retailer hit by the UK national insurance rises and increasing wage costs. Nonetheless, the company has strong cash generation, a solid dividend yield of almost 5% and a £300m buyback program. Roland wrote up the recent November results in the Daily Stock Market Report here with an Amber/Green rating. He noted that owning shares in Kingfisher might be better suited for cyclical trading rather than long-term holding. Well that’s what the NAPS does well.

Consumer Non-Cyclical

Palm oil and nicotine products may not be for everyone of course.

M P Evans (LON:MPE)

StockRank: 100, Market Cap: £501m, P/E: 9.4x, Yield: 5.28%

MP Evans produces palm oil in Indonesia with estates in Sumatra and Kalimantan. In the first half of 2024 they reported revenues up 22% and an 81% increase in earnings per share driven by higher production volumes and palm oil prices and lower costs. Strategic expansions have added over 10,000 hectares to its plantations as it continues its growth strategy. Palm oil has its detractors, so MPE does publicly commit to sustainability, mill certifications and so on. Overall, the company is performing well and has more than quintupled its dividend since 2015. At interims it further boosted dividends by 20%. Graham last rated it as Amber/Green at the June trading statement, and there's an extensive write up by a subscriber, Mahad, here.

Imperial Brands (LON:IMB)

StockRank: 100, Market Cap: £21477m, P/E: 8x, Yield: 6.43%

Imperial Brands, formerly Imperial Tobacco, grew operating profits by 4.6% in 2024 ahead of forecasts, with strong 26% revenue growth and reduced losses in its new lines of nicotine products (vapes and nicotine pouches). Traditional tobacco products do seem in decline, and regulatory pressures continue, but the growth in vaping and alternatives is plain to see and the business is adapting. The company continues to grow dividends (up 4.5% this year) and announced a £1.25 billion share buyback for 2025 (+14% on 2024). Apparently the business is unveiling a new 5 year strategy in a March Capital Markets day - so that’s well worth watching out for.

Energy

A pair of oil and gas companies at rather different sizes.

Seplat Energy (LON:SEPL)

StockRank: 97, Market Cap: £1129m, P/E: 10.1x, Yield: 6.21%

Seplat Energy is a Nigeria based oil and gas exploration and production company. It’s been a big winner for the 2024 NAPS with a 56% gain and appears again for 2025. It’s also one of the clearest trending mid-caps in the UK market at the moment, which shows the business has momentum and investor sentiment is improving. The first nine months of 2024 have seen two new oil fields brought on stream, including most recently Abiala, and the near completion of the Sapele gas plant. Free cashflow has been strong, with debt significantly paid down (from $366m in June to $270m in September) and the confidence to increase the dividend by 20%. The CEO is confident in the growth opportunities.

Shell (LON:SHEL)

StockRank: 94, Market Cap: £149327m, P/E: 7.8x, Yield: 4.98%

Shell plc is one of the world's largest energy companies, best known for oil and gas. It’s an absolute giant compared to the rest of the stocks in the portfolio and returns again to the NAPS after a 3.7% drop in the 2024 portfolio. The company significantly beat targets in its latest quarterly results, with adjusted earnings of $6bn vs estimates of $5.4bn. CEO, Wael Sawan, has been streamlining management, cutting costs and simplifying its low carbon program. Another $3.5bn quarterly share buyback was announced. Compare BP whose profits dropped and buyback program is under review. With a 5% yield and low valuation there’s plenty to like for investors if you aren’t concerned by fossil fuels.

Financials

Three financials may be a first in the NAPS. A consumer credit company, interbroker dealer and early stage insurance investor provide diversity.

International Personal Finance (LON:IPF)

StockRank: 100, Market Cap: £288m, P/E: 5.8x, Yield: 9.18%

International Personal Finance is one of our 12 stocks of Christmas and has been written up by Graham here. I recommend reading his coverage as he’s the expert. Nonetheless, IPF serves higher-risk credit customers who are underserved by mainstream banks - think home credit, credit cards, and online loans across markets including Poland, Czech Republic and Mexico. IPF targets a 15-20% return on equity and has fairly robust financials. While it does have significant debt, the company is confident enough to have launched a £15m share buyback. CEO Gerard Ryan holds nearly 2 million shares and is well aligned with shareholders.

TP Icap (LON:TCAP)

StockRank: 99, Market Cap: £1950m, P/E: 7.9x, Yield: 6.3%

TP ICAP is a financial intermediary connecting buyers and sellers across financial, energy, and commodity products, with a network of over 63 offices in 28 countries. The company has been considering strategic options for its Parameta Solutions (like spinning off as a US IPO), which some were saying a year ago could be worth as much as the whole business. Ironically just the knowledge of this created increased demand for the shares. For the nine months ending September 30, 2024, ICAP reported a 5% increase in revenue, with growth driven by Liquidnet (14%) and Parameta (10%). ICAP is a real gem of a success story in the UK financial industry. It recently launched a £30m share buyback program, aims to sustain a 50% dividend payout ratio, and is paying down debt. After a 32% gain for the 2024 NAPS, it returns for 2025.

B.P. Marsh & Partners (LON:BPM)

StockRank: 99, Market Cap: £267m, P/E: 12.3x, Yield: 1.48%

B.P. Marsh & Partners is a specialist investor in small and early-stage insurance businesses. It recently sold a 44% stake in Paladin Holdings for £42 million, and continues to make new investments, most recently in a pair of underwriting agencies. The company reported in its July half year results that NAV had increased by 10% to £253 million (690p per share) while group funds rose to £80m. This is strong liquidity to execute on the growth strategy. It’s cash generative with a commitment to shareholder returns, with a buyback program and a dividend payout now promised to grow to £4m annually. It’s also one of the “clearest trending small caps” in the UK.

Healthcare

A couple of branded and generic medicines and healthcare product providers.

Hikma Pharmaceuticals (LON:HIK)

StockRank: 93, Market Cap: £4381m, P/E: 10.7x, Yield: 3.18%

Hikma Pharma sells branded and non-branded generic medicines across across EMEA and North America. It reported a 10% increase in revenues in the first half of the year to June, and upgraded its full-year revenue growth guidance to 6%-8%, with momentum in North America and MENA. They recently acquired Xellia to strengthen their injectables business which is expected to boost earnings after the first year. The business is seeking to expand in Europe and continues to invest in R&D. It has a reasonable track record of revenue growth in recent years, but margins haven’t been sustained. Could that now be turning around?

Alliance Pharma (LON:APH)

StockRank: 85, Market Cap: £247m, P/E: 9.2x, Yield: 0%

Alliance Pharma has been in and out of the NAPS over the years. It’s a UK-based, but international, healthcare group focused on consumer healthcare. I don’t know if Nigel Wray still has a holding, but Slater Investments who I do respect have a 13% position. The business has an asset-light model and tries to maximise its brand values across Europe, North America, and Asia Pacific. Recently, the company reported strong revenue growth, notably from its Kelo-Cote (anti-scar silica gel) franchise, despite challenges like destocking in Nizoral. They have a new CEO since May, Nick Sedgwick, and they’ve recently had a successful appeal against the UK’s CMA which has relieved a £7.9m provision. Trading is unexciting with only a 2.8% revenue increase in H1 2024, but good cash flow and reduced debt. The shares have had a big knock since 2022, but have started to show signs of a “bowl” formation. Perhaps value and momentum will recover here?

Industrials

A range of businesses, some of which do seem rather oddly classified. From radiators to sports drinks to maritime services.

Supreme (LON:SUP)

StockRank: 99, Market Cap: £204m, P/E: 8.8x, Yield: 2.73%

Supreme plc distributes and manufactures a wide range of consumer brands to shops in the UK. From soft drinks to batteries to lighting to sports nutrition to vapes, the business covers a lot of ground. Supreme's financial performance has been strong, with half year revenues up 8% in September and pre-tax profits up 25%. It also announced it’s ahead of expectations for the full year - which we like. The company is debt-free (excluding leases) is growing dividends quickly and has a small buyback program. It’s acquisitive and seems very well run, and we have to give it some kudos for saving Typhoo tea. The black spot is the vapes exposure, which depresses the valuation, though the business has plans to shift into rechargeables.

Ocean Wilsons Holdings (LON:OCN)

StockRank: 99, Market Cap: £465m, P/E: 7.1x, Yield: 6.14%

Ocean Wilsons is Bermuda based and operates a couple of subsidiaries - Ocean Wilsons (Investments), which manages a global investment portfolio, and Wilson Sons which is a maritime services business in Brazil. The company is planning to divest its majority stake in Wilson Sons for 4bn BRL in 2025 which will focus the business on its investments portfolio. At that stage it will likely be excluded from the NAPS as I don’t include Collective Investment vehicles, but it sneaks in this year. In Q3 2024, it reported a 12% increase in Wilson Sons' net revenues and a 6% rise in the investment portfolio. Of note is the fact that Roland recently sold OCN out of the SIF Portfolio.

Stelrad (LON:SRAD)

StockRank: 99, Market Cap: £175m, P/E: 9.1x, Yield: 5.65%

Stelrad makes and distributes a range of radiator products across the UK and Europe. Despite a revenue decline of 9% in the first half of the year due to challenging markets across Europe and Turkey, it still managed to increase operating profits by more than 13% - quite an achievement. The management are focused on cutting costs and improving margins and have stated they will meet full year expectations. While their markets are depressed there are positive noises from management that when the market recovers they should see a sustained period of profitable growth.

Technology

A couple of tiny tech sector bets make the cut from a very underpopulated tech sector on LSE. Some may be wary of MTI Wireless Edge.

Journeo (LON:JNEO)

StockRank: 92, Market Cap: £42m, P/E: 10.7x, Yield: 0%

Journeo has been prominent among private investors after exhibiting at Mello conferences. It’s a leading provider products like CCTV surveillance, telematics, and passenger information displays to the transport sector (bus and rail). Recently, Journeo has expanded its reach by acquiring Infotec, which was a real coup of a deal, and MultiQ in Denmark. The company brought in a record order intake of £24 million in the first half of 2024 and secured more contracts. In October, they reported a 17% increase in revenue, pretax profits up 65% and a strengthening in its cash position by another £1.8m to £12.9 million. It’s talking a good game over developing SaaS-based solutions for recurring revenue but most of this business is in hardware. It does have a real tailwind behind it as it could be a beneficiary of green government spending to improve transport efficiency in rail and bus networks.

MTI Wireless Edge (LON:MWE)

StockRank: 91, Market Cap: £36m, P/E: 11.4x, Yield: 6.36%

MTI Wireless Edge is not a business I know well - and to be honest, I don’t like foreign businesses that list in the UK. Nonetheless it’s an Israeli tech group, specialising in communication and radio frequency solutions mostly in Antennae, especially to military and commercial applications. Despite the conflicts, MTI appears to be operationally stable with revenues of $34 million and a 10% rise in net profit to $3.1 million for the 9 months to September 2024, backed by a strong net cash position of $4.9 million. There are growth prospects in 5G and defense markets, and it pays a dividend of 6.4% and has share buyback initiatives. It appears to have had moderate operating leverage over time, with 5% revenue growth over the last 6 years generating almost double the profit growth.

Telecoms

Not a sector I love, but one I use daily. A big stalwart makes the cut.

Vodafone (LON:VOD)

StockRank: 95, Market Cap: £17207m, P/E: 8.9x, Yield: 6.37%

One of the great growth stock winners of the 90s, but now lacking much excitement at all. Vodafone provides mobile and fixed services to over 330 million customers in 15 countries, and is develoing a lead in financial technology services in Africa. Vodafone has been strategically streamlining, recently selling its Italian operations to Swisscom for €8 billion and its Spanish business for €4 billion, while merging in the UK with Three. Despite a 2.5% decline in Group revenue to €36.7 billion due to these disposals, service revenue grew by more than 6% in 2024. Vodafone met its financial targets in 2024 and should continue this stability through 2025. Other than all the net zero corporate greenwashing in every announcement, there’s a lovely 6.4% dividend to pick up while you wonder if it’s worth more than 9x earnings.

Utilities

One of the best growth stock stories in the UK market in recent years that trades on a very low P/E.

Yu Group (LON:YU.)

StockRank: 98, Market Cap: £302m, P/E: 8.5x, Yield: 3.62%

Yü Group PLC is an up and coming supplier of gas and electricity to businesses, while also providing smart meters and other solutions. The company has been generating some of the best growth figures in the UK market but still trades as a value stock - it’s our only utility in the portfolio. In the first half of 2024, revenues increased 60% to £313 million and a 52% rise in eps. They reported a 125% boost in smart meter installations at the mid year point. Yü Group maintains a strong net cash position of £87 million and is on track to meet its year end targets. It has impressive growth and a commitment to shareholder returns through a progressive dividend policy. It’s targeting market share in a £50bn+ market - so plenty to play for.

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As usual, one of these stocks will probably double and one will halve. If you know which one is which, please let us all know in advance!