2024 has been a bumpy year for UK stocks but I’ve had my share of winners, including two I bought in the final days of last November. There must have been something in the water that month, because both have done brilliantly. Can their dazzling run continue in 2025?
I think so and I’m holding on to both stocks.
My first red-hot stock pick was infrastructure specialist Costain Group (LSE: COST). Its big appeal was that net cash on its balance sheet was worth more than its market-cap, offering a big safety net for a smaller company.
Costain Group has been a brilliant buy
Costain ended 2023 with £194m in net cash against a market-cap of £188m. When I last wrote about the stock on 22 September, net cash had shrunk slightly to £166m while the market-cap had soared to £284m.
It still has a big comfy cash balance and is earning a heap of interest simply for parking it in the bank. That may fade if interest rates fall next year but Costain’s underlying business has been doing well too.
First-half profits to 30 June climbed 8.7% to £16.3m, with margins edging up. Revenues actually dipped 3.8% to £639.3m. Costain investors must put up with this level of bumpiness, as old projects are wrapped up, in this case the main works at Gatwick Airport Station.
Happily, it’s winning new contracts with a “very healthy” £4.3bn order book. The board felt able to reward shareholders with a £10bn share buyback.
The Costain share price has soared 80.31% in a year but the stock still trades at a modest 8.48 times earnings.
The yield’s a mere 1.06% but it’s hard to complain. Next year could be stickier as the UK economy may slow while the inflation revival could push up costs. But after the year I’ve had, I’m certainly not selling.
The Just Group share price still looks amazing value
I followed my nifty purchase of Costain Group by snapping up undervalued FTSE 250 insurer Just Group (LSE: JUST) on 30 November. Its shares are up 70.71% since. If investing was always like this everybody would do it.
The Just Group share price was too cheap to ignore, trading at just 4.2 times earnings. It slumped after 2015’s pension freedom reforms scrapped the obligation to buy lifetime annuities at retirement, a key product for Just. It was also knocked by regulatory threats over equity release lifetime mortgages, another key product, but they came to nought.
Life goes in cycles and personal annuity sales have revived as rising interest rates give pensioners more income. Just has also benefitted from the boom in bulk annuities, where companies de-risk by passing on pension scheme liabilities to insurers.
Again, the shares looked cheap despite their stellar run, trading at just 5.06 times earnings. There are risks though. Just is competing for bulk annuity business with blue-chip FTSE 100 insurers. Personal annuity sales could drop sharply when interest rates retreat. The trailing yield’s a lowly 1.46%. But I’m having too much fun to sell now.
Given Costain and Just’s continuing low valuations, if I didn’t already have a suitably-sized holding in these two stocks I’d buy them today and believe they’re worth investors considering.
