The final stretch of 2024 has given equity investors plenty to chew on. Stock markets have broadly welcomed the re-election of Donald Trump. But the upcoming change at the White House have put concerns about the direction of inflation and interest rates back on the table. The possibility of a trade war is another risk we’ll be keeping a close eye on.
Closer to home, economic growth figures in the UK have been disappointing, and businesses are having to prepare for further rises in the National Living Wage and National Insurance contributions.
We take a look at how our five shares to watch for 2024 are shaping up as the world begins its next trip around the sun.
This article isn’t personal advice. Investments and any income from them can fall as well as rise in value, so you could get back less than you invest. If you’re not sure if an investment is right for you, seek advice. Past performance isn’t a guide to future returns. Yields are variable and not a reliable guide to future income – remember, no shareholder returns are guaranteed.
Investing in individual companies isn’t right for everyone. Our five shares to watch are for people who understand the increased risks of investing in individual shares. If the company fails, you risk losing your whole investment. You should make sure you understand the companies you’re investing in, their specific risks, and make sure any shares you own are held as part of a diversified portfolio.
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Baker Hughes
Baker Hughes looks on track at the moment to report another strong year of revenue and profit growth for 2024, after raising guidance a touch back in July.
Analysts are looking for an 8% revenue uplift to $27.6bn, largely driven by the Industrial & Energy Technology (IET) division, reflecting robust demand for Climate Technology Solutions and Gas Technology. Growth from Oilfield Equipment & Services (OFSE) is expected to be slower against a backdrop of weakness in drilling activity in the United States.
Profitability has been benefitting from higher pricing and efficiency gains, supporting guidance of a 20% increase in underlying cash profit (EBITDA) to $4.5bn.
Order intake has weakened a little, falling 11% between the second and third quarters. A $33bn orderbook means it can deal with short-term lulls in commercial activity. So, we’re not too concerned yet – but it’s something to monitor.
The incoming Trump administration is expected to be supportive of drilling activity which could boost demand for the OFSE segment. A drive to boost liquefied natural gas (LNG) development and exports could be a tailwind for equipment in the Industrial Energy and Technology arm.
The valuation has strengthened since the US election, suggesting investors are also excited about the outlook. But with the timing of equipment orders hard to predict, there’s scope for further ups and downs ahead.
Coca-Cola
Coca-Cola’s had a strong 2024, with guidance getting upgraded three times so far. The soft drink giant is now expecting full-year organic revenue growth of 10%, ahead of the broader sector average.
Price increases have helped push these revenues higher, but what’s really impressed us is that volumes have held up much better than its competitors this year. Markets are expecting this outperformance to continue into 2025.
Adept management and operational prowess mean the top-line growth is being converted into double-digit profit growth. Coca-Cola focuses on selling its concentrate syrup, rather than doing the actual manufacturing and bottling. That helps keep a lid on costs and supports its industry-leading gross margins, which continue to hover around the 60% mark.
It also means the group doesn’t need to constantly maintain and upgrade bottling machinery, which can be expensive. As a result, there’s plenty of cash pumping around the business, helping to support the 3.2% prospective dividend yield. As always though, shareholder returns are never guaranteed.
Despite a strong underlying performance, the valuation has come under pressure towards the end of the year, largely due to expected unfavourable currency exchange rates. The decline looks overdone in our eyes, and we view the current valuation and outlook as attractive. But remember, nothing is immune to ups and downs, especially in the short term.
CVS Group
Despite consulting closely with the UK Competition and Markets Authority (CMA), CVS Group couldn’t prevent the launch of a formal market investigation into UK veterinary services. That’s been weighing on both customer demand and investor sentiment.
This was compounded by a cyber security breach resulting in a significant slowdown in growth over the last financial year. The first four months of the current year have remained challenging with like-for-like sales holding flat.
For now, acquisitions look to be the key growth driver. The focus is firmly on Australia, which we think has good potential. The balance sheet retains some headroom to make further deals. But if CVS wants to pick up the pace, it may need further financing.
CVS also needs to be careful not to take its eye off the ball in its backyard. We still see attractive long-term dynamics in the UK, where some competitors are thriving despite the market backdrop.
The group’s valuation is now well below the long-term average. We feel this represents an opportunity for investors with a higher risk tolerance to invest in a high-quality business that has growth potential.
But until further clarity on the likely remedies emerges from the CMA there’s an added element of risk, and we’re not expecting a steer until May 2025 at the earliest.
Greggs
Greggs has had a good year, and the most recent trading update from back in October didn’t throw up many surprises. Like-for-like sales growth is slowing, but that was expected. There was a slight positive on the cost side of things, though it lacked enough meat on the bone to cause any changes to full-year profit guidance.
We’ve been pleased to see movement on some of Gregg’s key growth initiatives, such as new delivery partnerships, menu upgrades, and staying open later to tap into the evening market. Plus, there’s been progress on the store expansion, with a focus on travel locations like train stations.
The cash hoard on the balance sheet is expected to be flexed to cover increased growth investment, but that’s precisely what it’s there for. The growing dividend is also an ongoing attraction, with the current forward yield sitting at 2.6%, but returns aren’t guaranteed.
It’s not been plain sailing, and the UK budget threw a spanner in the works, as new tax changes are expected to rack up tens of millions in extra costs. We think Greggs can adapt to these changes and continue to like the name from here - though expectations are high, which raises the risk of volatility, and there are no guarantees.
Lloyds
We’ve been encouraged by the progress made this year, as our initial view that the market’s outlook for UK banks at the start of the year was overly pessimistic has largely proven accurate.
While total income isn’t quite at the levels seen last year, the feared wave of borrower distress due to higher interest rates hasn’t materialised. Instead, the operating environment remains favourable.
Net interest margin (NIM) — a key measure of profitability in lending and borrowing — stabilised in the third quarter after a couple of softer quarters, which is a reassuring sign.
Mortgage demand has started to pick up as interest rates have eased from their recent highs, and the rate of savers shifting to longer-term products has slowed. Both trends provide some much-needed breathing room for banks.
Lloyds remains one of our preferred names in the sector, with strong capital levels that will hopefully support returns to shareholders over the next few years.
However, a key risk has emerged with the FCA investigating the mis-selling of motor finance. Lloyds is more exposed than its peers and has already earmarked £450 million to cover potential costs. Whether this provision will be sufficient remains uncertain, making it an ongoing risk that investors should monitor.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Investments rise and fall in value so investors could make a loss.
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
