The FTSE 100 a made a strong start to 2024 but the final months of the year were bumpy. A total return of around 10%, including dividends and share buybacks, is roughly double the yield from cash and bonds. But it was overshadowed by stellar US performance.
Wall Street has been going great guns for the last decade, driven by the almost unbelievable performance of mega-cap tech stocks like Nvidia and Tesla.
Yet that the UK has had its winners too, with British Airways-owner International Airlines Consolidated Group and jet engine maker Rolls-Royce growing 95% and 90% respectively this year. Both have benefited from the post pandemic recovery in the airline sector.
2024 was much better than it looks for UK stocks
While most investors measure performance by how well a country’s main index has done, it’s not so relevant for people like me who prefer to pick their own stocks rather than buy trackers.
While it can be more rewarding, it’s also risky. My best FTSE 100 performer this year is private equity specialist 3i Group, up 50%. My worst is JD Sports Fashion, down 40%. So which would I buy today?
To me, it’s a no-brainer: JD Sports. Its shares have taken a beating as consumer spending is squeezed, key partner Nike struggles, the Budget hikes employer’s national insurance bills, and Donald Trump threatens trade tariffs.
Yet JD Sports is now incredibly cheap, trading at eight times earnings. It looks like a bargain buy with great recovery prospects. And it’s not the only FTSE 100 stock that fits that profile.
Lloyds Banking Group (LSE: LLOY) has sold off in recent months, as its Black Horse division got embroiled in the motor finance mis-selling scandal.
Lloyds could be a winner in 2025
Lloyds set aside £450m for potential fines and customer compensation, but that may not be enough. RBC Capital Markets warned Lloyds could take a £3.2bn hit. It put FTSE 100 rival Barclays down for a mere £400m.
The Lloyds share price is up around 12% year to date, with the trailing dividend yield of 5% lifting my total return to 17%. Investors in Barclays have enjoyed a total return of 70%. The mis-selling scandal isn’t the only difference between the two, but it’s a big one.
Yet I’m sticking by my Lloyds shares and would buy more inside my Stocks and Shares ISA if I had the cash. They look cheap, trading at 7.1 times earnings, while the forward yield is a bumper 6.1%. Shareholder payouts look solid, covered 2.1 times by earnings.
Lloyds faces risks. The motor finance scandal could turn into a real car crash. A slowing UK economy could drive up debt impairments. Falling interest rates could cut margins. So it goes with every stock.
The all-conquering US faces risks too. Whether the Trump administration succeeds or fails, one thing is certain. It’s going to be bumpy. Plus the S&P 500 is roughly twice as expensive as the UK to start off with. I’m hoping the FTSE 100 will close the gap in 2025, with cut-price stocks like Lloyds leading the charge.
