Criterion: Where to dig for share value in 2025 (and we’re not talking mining)

The local market’s robust 2024 performance means investors need to be judicious about growth stocks
The REIT sector presents opportunities as it recovers from its pandemic low
Listed investment companies are trading at steep discounts to net asset value

Heading into 2025, value-seeking investors may feel stymied given local shares had a decent run in 2024 and are unlikely to replicate the gains.

‘Overall’ is the operative word, with the banks and hammer-and-nails merchant Wesfarmers accounting for much of the uplift.

Bargains can still be unearthed. But like a miner working well-fossicked Kalgoorlie ground, investors may have to dig harder.

The ASX 200 index ended around 7 per cent in 2024, having gained 11 per cent to a record high in early December.

The all-industrials index rose a lusty 12 per cent.

Meanwhile, Commonwealth Bank (ASX:CBA) defied gravity with a 35 per cent per cent increment.

The shares could advance further on lazy super inflows, but is that the best investors can do?

The 2025 investing big picture may be all about thinking small.

Maple Brown Abbott’s Phillip Hudak says 2025 has “all the hallmarks of the year of the Australian small caps,” given a mediocre 2024 showing.

The small-ordinaries index gained 5.7% per cent in that year, with performance driven by a handful of stocks growing earnings faster than underlying economic growth.

Hudak’s not-so-dirty dozen consists of Hub24 (ASX:HUB), Netwealth Group (ASX:NWL), ARB Corporation (ASX:ARB), PWR (ASX:PWH), Technology One (ASX:TNE), Breville (ASX:BRG), Premier Investments (ASX:PMV), Codan (ASX:CDA), ProMedicus (ASX:PME), AUB Group (ASX:AUB), Iress (ASX:IRE) and Data#3 (ASX:DTL).

Investors need to be cautious given some of these shares more than doubled last year, led by Pro Medicus’s 150 per cent increment.

The notable laggards are high-end car radiator group PWR Holdings and Data 3, so presumably they present the best value. PWR supplies every car on the Formula One grid, so how cool is that?

The real estate investment trust (REIT) sector continued its post-pandemic recovery, with the index gaining 16 per cent in 2024.

But much was attributable to the $70 billion market cap sector gorilla Goodman Group (ASX:GMG).

For office and some retail and industrial REITs, many are trading well below net tangible asset (NTA) value.

Janus Henderson Investors co-head of global property equities Guy Barnard believes the REIT market has bottomed, as evidenced by growing transactions.

Naturally higher interest rates have been a headwind, but the increased cost of funding and cost inflation have also knocked out potential and planned new supply.

“Share valuations have rarely ever been more discounted relative to broader equities, while interest rates have turned from a headwind into something more supportive,” he says.

Speaking of NTA discounts, Affluence Funds Management’s Greg Lander is “astounded” by lowly LIC valuations and suspects they have reached “peak madness”.

Investors are shunning LICs partly because of the popularity of exchange-traded funds as an alternative, poor liquidity and higher interest rates that blunt the popularity of LICs’ dividend yields.

Despite a heavy exposure to the banks, sector LIC grandaddy Australian Foundation Investment Company (ASX:AFI) trades at a 10 per cent-plus discount, when normally it trades at a small premium.

In effect, investors are getting $1 of assets for 90 cents – including beloved CBA shares. In the case of other LICs the discounts can be much steeper.

Granted, some LICs are badly managed and deserve their persistent NTA discounts.

But Lander says: “even LICs that have done everything right, performed well and historically traded at par or a premium are falling into discounts”.

Market forces are dealing with underperforming LICs, evidenced by four delistings and two mergers done in the last 12 months to eliminate NTA discounts.

Meanwhile, Hudak cites the rise of artificial intelligence, which means buying data centre plays such as NextDC (ASX:NXT) and the Kiwi-based Infratil (ASX:IFT)

Both shares have run hard – up 9 per cent and 23 per cent respectively in 2024 – but are also well off their high points.

Merger and acquisitions also ticked up in 2024, which should continue this year.

Good luck with picking the likely targets, though.

Now get back to the beach: those sandcastles won’t build themselves.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision