Top Picks for 2025: How to Position Your Portfolio Ahead of Rate Cuts

In this article, we’ll walk you through how our portfolio managed to achieve solid returns in 2024, comfortably beating the ASX 200. We’ll dive into the factors that contributed to our performance, like the strength of the tech and financial sectors, while also acknowledging the struggles in mining and energy stocks. Looking ahead to 2025, we’ll talk about what’s on the horizon for the Australian market, from interest rate changes to global trends and sector rotations. Plus, we’ll share our latest recommendations to help you position your portfolio for continued growth in the coming years. How We Delivered 27.4% Returns in 2024 and What’s Ahead for 2025 The Australian equity market in 2024 was influenced by global economic trends, especially the positive momentum from the U.S. stock market and its tech sector. Despite some slowing domestic growth, Australian equities kept pushing forward, largely thanks to strength in technology and financials. The tech sector, in particular, delivered strong results, with companies like Xero and Pro Medicus posting impressive gains. Major banks also saw share price growth, but this came more from multiple expansion than actual earnings growth. On the other hand, the mining and energy sectors struggled with weaker commodity prices, leading to some notable declines. Overall, our portfolio performed well across growth, income, and mining stocks, achieving a solid annualised trailing twelve-month return of 27.4%(*), which was a clear outperformance compared to the ASX 200’s 11.45% return. Economic and geopolitical factors also played a role in market movements. Government spending and a resilient business environment helped sustain growth, while easing inflation provided a more stable backdrop for investors. The U.S. presidential election contributed to positive sentiment with pro-business policies, though China’s economic stimulus efforts had a limited impact on Australia’s export-driven economy. Despite uncertainties, select sectors drove strong market performance, with technology and financials leading the way. We capitalized on these trends, delivering substantial outperformance across our portfolio. In this article, we review our positions and share our latest recommendations to help you position your portfolio for growth in 2025. 2025 Outlook: Interest Rate Shifts, Chinese Stimulus, and Sector Rotation Could Impact Aussie Stocks As we look to 2025, several key catalysts are set to define the movement of the ASX 200. Interest rate expectations are one of the central factors we are monitoring, as we expect the Reserve Bank of Australia (RBA) may be forced to consider rate cuts due to cooling inflation and slower economic growth. This shift could provide relief to sectors sensitive to borrowing costs, such as real estate and consumer discretionary. Furthermore, global trends of easing monetary policy could also have an impact on the RBA’s decision-making. Source: Trading Economics (2025) We also see China’s economic stimulus efforts as a critical driver for the Australian market, particularly within the mining sector. The People’s Bank of China (PBoC) is likely to implement fresh stimulus measures to combat slowing growth, which could strengthen demand for Australian commodities like iron ore and lithium. If China’s economy picks up steam, this would likely boost earnings for ASX-listed miners. Alongside this, we anticipate a sector rotation away from banks, with investors reducing their exposure to financials, and turning to mining stocks, especially those tied to lithium and gold. Lastly, domestic economic trends will be key in driving market performance. Although high interest rates have pressured consumer spending, upcoming tax cuts are expected to provide a much-needed contribution to local demand. This could support sectors such as retail, housing, and infrastructure, offering potential opportunities for companies focused on the Australian economy. With these factors at play, 2025 promises to be a year of shifting dynamics, with interest rate decisions, China’s actions, and commodity price movements all playing crucial roles in shaping the ASX 200. An Overview of Our Latest Recommendations Codan Ltd (ASX: CDA) – Up +98% Over the Past 12 Months – Recommendation: Hold Codan Ltd has had an impressive year, beating our initial target with significant growth across its core segments. The company saw a 21% rise in revenue, reaching $550 million, and a 29% increase in EBIT, which totaled $114 million. Their Communications and Metal Detection segments led the charge, with Communications growing 19% and Minelab posting a 25% jump in revenue. Codan’s acquisition strategy, like the recent purchase of Kägwerks, is strengthening its presence in the military communications space. That said, our valuation, based on a Discounted Dividend Multi-Stage Model, suggests the stock is slightly overvalued, with a fair value estimate of $15.20 per share. So, while the company’s fundamentals are strong, we’re maintaining a “Hold” rating for now, waiting for a better entry point if the stock pulls back. Looking at the numbers, Codan’s Communications division saw revenue of $292 million, a 19% increase, with a 21% jump in its order book. Minelab’s contribution was also solid, reaching $258 million, a 25% rise, with margins improving from 32% to 35%. The company’s balance sheet remains healthy, with net debt rising to $75.4 million, up by $23.7 million due to acquisitions and investments in product development. They also expanded their bank facilities to $200 million, ensuring flexibility for future growth. Despite the solid growth, Codan’s stock is trading at a trailing P/E of 19.5x and a forward P/E of 17.8x, suggesting much of the upside is already priced in. We think a near-term pullback could offer a more attractive entry point. Click here to read the full report Universal Store Holdings Ltd (ASX: UNI) – Up +92% Over the Past 12 Months – Recommendation: Buy Universal Store Holdings (ASX: UNI) has shown robust growth, with a 19.3% increase in sales for the first 17 weeks of FY25, driven by its Universal Store and Perfect Stranger brands. The company benefits from a diverse portfolio that includes over 50 premium brands and private labels, catering to the youth demographic. UNI is expanding its footprint with plans to open up to 15 new stores this fiscal year and investing in systems and team expansion to support long-term growth. Despite inflationary challenges, the company has maintained stable gross margins, thanks to its successful private brands and strategic focus on trends appealing to young shoppers. UNI’s strong sales momentum is also supported by improving consumer confidence, with discretionary spending picking up, particularly among its target audience. The company is making strategic investments in technology and expanding its store network, with several new locations already launched. With a focus on growth and consistent dividend returns, UNI is well-positioned for future success. The company has a solid dividend history and is projected to deliver steady annual growth, with an estimated target price of $9.11 per share, offering a 13% upside. Click here to read the full report SRG Global Ltd (ASX: SRG) – Up +95% Over the Past 12 Months – Recommendation: Buy SRG Global is well-positioned for long-term growth, driven by strong financials, a strategic acquisition, and an expanding contract base. The company reported impressive FY24 results, including $1.069 billion in revenue, $98.5 million in EBITDA, and a shift from net debt to a net cash position of $17.8 million. A key move was the acquisition of Diona for $111 million, which enhances SRG’s capabilities in water security and energy transition. This deal, expected to be 10% accretive to EPS, also adds $1 billion in work-in-hand, expanding SRG’s total to $3 billion. Additionally, SRG has secured $700 million in new contracts and has a promising FY25 EBITDA outlook of $125 million. With a diversified portfolio and a growing pipeline of $8.5 billion in opportunities, SRG’s future growth looks promising. The Diona acquisition strengthens the company’s recurring revenue base, shifting 80% of its income to stable sources. SRG continues to reward shareholders with increased dividends, reflecting its strong financial position. The company’s focus on high-growth sectors like water, energy, and transport, along with an expanding market presence, positions it for sustainable growth. With robust fundamentals and a target price of $1.77 per share, SRG offers compelling long-term value for investors. Click here to read the full report Ricegrowers Ltd (ASX: SGLLV) – Up +53% Over the Past 12 Months – Recommendation: Buy Ricegrowers, also known as SunRice, is a highly diversified Australian food company, with over half of its revenue coming from international markets. The company operates across six key segments, including International Rice and Riviana Foods, which helps to mitigate risks related to market fluctuations. In FY24, SunRice achieved a 15% increase in revenue, reaching $1.88 billion, and both EBITDA and net profit grew by over 20%. The company has also raised its dividend payout to a record 60 cents per B Class share, reflecting its strong financial performance and commitment to returning value to shareholders. As a member of the S&P/ASX Agribusiness Index, SunRice benefits from industry recognition, and its operational efficiency improvements and global pricing power position it well for continued success. High rice prices, driven by export restrictions in major rice-producing countries like India, have provided a favourable market environment for the company, helping to sustain margins. Looking forward, SunRice is projecting annual revenue growth of 7.6% to 8.1% over the next five years. The company’s strategic initiatives, including global expansion and operational enhancements, combined with favourable trends such as strong crop yields and the weaker Australian dollar, create a solid foundation for growth. The company’s strong brand portfolio and diverse revenue streams position it to continue benefiting from both mainstream consumer demand and niche specialty rice products. A valuation analysis, using models such as the Multi-stage Dividend Discount Model and DCF, estimates an intrinsic value of $13.74 per share, with a potential upside of 37.5%. Based on its strong outlook and solid fundamentals, we maintain a “Buy” rating with a target price above $13.60 per share. Click here to read the full report SHAPE Australia Corp Ltd (ASX: SHA) – Up +60% Over the Past 12 Months – Recommendation: Buy SHAPE Australia is a prominent national player in the fitout and construction space, known for its extensive experience in delivering high-quality projects across a range of sectors, including commercial buildings, education, healthcare, hospitality, retail, and defence. The company offers a wide array of services, from high-end office fitouts to boutique hotel refurbishments and modular construction solutions. SHAPE’s expertise in both traditional and modular construction provides added benefits such as faster timelines, improved safety, and more sustainable practices, ensuring that the company stays ahead of industry trends. With a history of solid performance, SHAPE has built a strong reputation for its reliability and innovation. In FY24, SHAPE secured over $1 billion in new projects, contributing to a robust $3.3 billion project pipeline. The company has continued to grow its regional operations, winning $45.9 million in project contracts year-to-date for FY25, reinforcing its leadership in the Australian construction market. As part of its growth strategy, SHAPE has diversified into new service offerings, including Design & Build and Aftercare & Facilities Maintenance, further strengthening its ability to meet evolving client needs and enhance long-term revenue streams. This diversification, combined with a strong focus on client relationships, positions SHAPE as a resilient company capable of navigating challenges such as rising costs and labour shortages, while still driving impressive growth. With its diversified operations, SHAPE is positioned to capture future opportunities in both residential and infrastructure projects, driving forward momentum in the construction sector. We are issuing SHAPE as a long-term Buy with a target price of $3.65 per share. The company’s solid financial position, growing project pipeline, and focus on diversification make it an attractive investment choice for those seeking both reliable dividends and long-term growth. Click here to read the full report (*) DISCLAIMER Past performance is not indicative of future results.