Image source: Getty Images
3i Group (LSE: III) and Marks and Spencer (LSE: MKS) have been two of the best performing stocks FTSE 100 this year. As I write this in late December, they are up 48% and 40%, respectively, year to date.
Can these hot stocks crash the market again next year? Let’s talk.
Hot industry
Starting with private enterprise and infrastructure company 3i Group, I see many reasons to be economic as we look to 2025. First, private equity is the hottest industry right now. Around the world today, high-net-worth investors are shifting to alternative currencies and private equity firms like 3i are benefiting.
Second, the company has a lot of momentum. One key driver here is Action – the European discount store 3i owns around 80%. For the six-month period ended 30 September, Action’s sales were up 21% year-on-year. During that period, EBITDA increased by 26%.
Action is a major contributor to our profitability and continues to generate industry-leading growth. With a strong business and financial model and a white space in which to expand, we believe it will continue to do so for many years to come.
3i Half-yearly group report
It is worth noting that in the group’s latest report H1, it said it has a good pipeline of high-quality acquisitions over the next 12 months. It also said it has exciting potential opportunities in its investment pipeline.
Finally, the rating remains low. Currently, the price-to-earnings (P/E) ratio here is only 7.1. That compares to 40 of Blackstone20 of Apollo Global Management and 12 because Carlyle. Given the very low valuation here, I wouldn’t be surprised if another company tried to buy 3i Group.
Putting all this together, I believe 3i shares have the potential to outperform Footsie again in 2025 and should be considered for a portfolio today. Assuming the financial markets don’t go bad for some reason (a situation that would hurt private equity firms), I think this company will continue to do well.
Doing great things
As for Marks and Spencer, I have little confidence here. I still like the company from an investment standpoint. Currently, Marks and Spencer is doing great things in both food and clothing.
And revenue and profits go up as a result. For the year ending March 31, 2025, revenue and earnings per share are expected to increase by approximately 5.6% and 16%, respectively.
However, after the big share price rise this year, the valuation is not as attractive as it used to be. Currently, the P/E ratio is 13.3 and that doesn’t leave a lot of room for much expansion, in my opinion.
Another issue to consider with Marks and Spencer is the cost increase due to the recent National Insurance and minor wage changes announced in the UK Budget. In November, the club said it could face additional costs of around £120m next year.
Given that net profit last financial year was just £431m, that would be quite an achievement.
Given the valuation and cost risks, I don’t expect much return from this stock in 2025. It may still outperform the FTSE 100 index though, so I think it’s worth considering.
Source link
