Long Term Stock Picks for 2025

Chantal Marx

Last year was a strong year in global equity markets, with the perennially underperforming JSE also delivering a decent showing.

The S&P 500 had a bumper year after a very strong 2023 as the AI revolution continued to give impetus to the technology sector and embedded the “Magnificent Seven” as the clear winners in the AI race. The Chinese market showed some improvement despite continued uncertainty around the structural constraints facing that economy and what has to date been an underwhelming response by authorities to reignite growth.

South Africa company valuations are less attractive this year relative to the start of last year, although we still see upside in certain sections of the SA Inc basket and, notably, the rand hedge counters seem to offer very good value. While there is still very strong thematic thrust behind the US-based technology stocks, these companies now look expensive, and this has prompted us to look for better value elsewhere.

The market has readjusted its interest rate expectations for the US Federal Reserve and by extension, interest rates globally. It is now expected that we will only see a further two cuts of 0.25% each in the US. The shallower than initially anticipated cutting cycle will likely be negative for risk assets. The dollar is expected to remain strong as President Donald Trump’s policies gain traction, and this, together with possible disruptions to global trade, is generally regarded to be a further negative for emerging markets. As such, we enter the year with some trepidation around overall market returns and believe that this could be a good year for “stock pickers”.

In 2024, our stock picks delivered 29.5% on a total return basis in rands (measured from the day of publication, being 22 January). Our best performers were Nvidia (+117.4%), African Rainbow Capital (+95.8%) and KAL Group (+31.9%). Our worst picks were CVS (-35.2%), Bidcorp (-1.9%) and Cybersecurity ETF BUG (+5.0%).

Local
Bidcorp is a market-leading food service product distributor across several geographies including the United Kingdom, Europe, Middle East, South America, the Asia-Pacific region, and South Africa. The company’s business units operate across the food and ingredient manufacturing sectors, such as catering, hospitality, leisure, baked products, poultry, meat, seafood, and processing. The strategy is to grow organically in existing regions and acquisitively in new ones, with improvements in the customer mix and value add opportunities providing further upside potential.

• The group has a well-diversified client base and businesses at different life cycles across developed and emerging geographies.
• Bidcorp is not overly exposed to any specific client or category, boasting healthy diversification across the portfolio.
• The company’s dual strategy of targeting organic (primary focus) and acquisitive growth spreads risk, with the flexible balance sheet offering room for further bolt-on acquisitions, which are under consideration across the group both in geographic expansion opportunities as well as value-add product development.
• The group’s market leading position in many countries of operation provides some pricing power in a low-margin industry.

While consumer demand remains subdued as the cost-of-living crisis continues to impact spending in most countries, the group continued to deliver record levels of growth according to the recent four-month update (ended October 2024) amid a resilient performance across divisions – management continued to focus on growth in preferred sectors of the market. Margins also held up well and came in ahead of the comparative period, assisted by a slight improvement in the UK and despite many other businesses sacrificing some gross margin to grow sales. Looking ahead, the company remains financially strong, with relatively low levels of gearing and a robust business model with solid diversification and defensive characteristics. In addition, management remains flexible, nimble, and highly adaptive in maintaining reputable service levels and relevance to targeted markets.

Bidcorp is trading on a forward PE of 16.9 times, below its long-term average of 20 times. We maintain a favourable long-term view on the counter.

Naspers (NPN)/ Prosus (PRX)
Naspers (NPN) is a prominent multinational media group which has, over the last two decades, evolved from a traditional print media business in just one country to a broad-based e-media company operating across multiple regions and markets. Naspers’ most notable asset is Prosus (PRX), which in turn, has a significant shareholding (~26%) in Chinese internet giant, Tencent (known for its social media, gaming and cloud service offerings). Prosus is essentially the international internet assets division of Naspers, focused on e-Commerce, Food Delivery, and Classifieds.

• Prosus is the largest consumer-internet company in Europe and among the largest technology investment companies in the world, operating across a variety of platforms and geographies. In addition to Tencent, some of its largest investments include Delivery Hero, Swiggy and Udemy, as well as OLX and PayU, which are fully owned.
• Despite persistent regulatory risk and current macroeconomic weakness in China, we remain positive on Tencent’s near- and long-term growth prospects, particularly in spaces like fintech, cloud computing and AI. Growth in advertising should also remain supportive of the company’s valuation.
• We believe there are significant growth opportunities for several of the group’s assets, as was the case previously with Tencent and Delivery Hero, which have since lived up to their potential.
• Recent acquisitions in the payments space in India and travel sector in Latin America could be a catalyst for better diversification and growth in the future. The group’s focus on high-growth sectors (such as fintech and edtech) within emerging markets (such as Latin America, Asia, and Eastern Europe), is particularly encouraging.
• The group has a history of strong financial performance as well as robust balance sheet fundamentals and is managed with a clear long-term vision – the e-Commerce businesses recently became profitable and food delivery. in particular. has started to contribute meaningfully to the bottom line.
• The management team (which boasts a proven track record) is actively taking steps to address the size of the respective discounts.

Prosus, Naspers and Tencent share prices came under pressure early in January after Tencent was placed on the US Department of Defence or DOD’s Section 1260H blacklist, which includes companies suspected of doing business with the Chinese military. For reference, unlike the CCMC/CMIC lists, which have strict trade and investment bans due to national security concerns, the Section 1260H list does not have a direct bearing on Tencent’s operations or relationship with suppliers/consumers. Tencent’s inclusion in the DOD’s Section 1260H list does not pose a direct risk to the demand/supply fundamentals of the group, nor does it restrict trade in its shares.

While Tencent has denied any business dealings with the Chinese military, this may place a negative overhang on the name, at least in the short term. We think that following the sell-off in the three counters, they are offering even better value in our view. We expect the performances of Prosus and Naspers to be supported by an eventual recovery in Tencent’s share price, better profitability in the other investments, and a continued narrowing of their respective discounts (i.e. significant upside in their share prices), supported by ongoing share repurchases and further portfolio management and corporate activity.

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