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It’s less than two weeks until the New Year, and while the ISA contribution allowance aligns with the financial year, 1 January will likely present a fresh opportunity to maximise portfolio returns. As such, ‘tis the season’ to plan out a strategy for 2025. So, with that in mind, here are two ISA strategies to consider using in 2025.
Consistent contributions remains key
Writing at the end of 2024, it seems appropriate to highlight that trees don’t grow to the sky. The US stock market has delivered incredible growth over the past 12 months, but with valuations looking quite spicy, it may not be a great time to invest a big chunk of money.
Instead, maintaining consistent investment contributions is a wise strategy. This approach, known as pound cost averaging, involves investing a fixed amount at regular intervals, regardless of market conditions.
Benefits of this strategy include:
- Mitigating the impact of market volatility by averaging out the cost of shares over time
- Encouraging disciplined investing habits
- Reducing the stress of trying to time the market perfectly
Taking the emotion out of it
The second strategy involves using quantitative models for investing, and moving as far away as possible from investing based on pure emotion. This should help investors navigate what is becoming an increasingly complex market environment, characterised by enhanced volatility and, in the US at least, sky-high valuations.
And while investors may have been rewarded in recent years for picking US stock market trackers, it may be a good time to use quantitative models to find pockets of value within the market.
One stock that continues to stand out for me is Celestica (NYSE:CLS). The stock is up 250% over the past year, indicating that it has very strong momentum. However, it’s currently trading at 25 times forward earnings and is expected to grow earnings by a compound annual growth rate of 28% over the medium term. This leads us to a price-to-earnings growth (PEG) ratio of 0.92. That’s a bargain in the current climate.
The company operates two main business segments — Advanced Technology Solutions and Cloud Computing Solutions — and has surged on the back of demand for products and lifecycle services in the cloud segments, much of it related to artificial intelligence (AI).
However, investments aren’t risk free. Some analysts have highlighted that two-thirds of Celestica’s business comes from just 10 clients, suggesting some degree of concentration risk.
Nonetheless, it’s hard to argue that this isn’t a business on the up. The AI boom has allowed the company to shift towards higher margin operations in cloud computing. The group now receives more than two-thirds of its revenue from the CCS segment, which grew by 42% in Q3, while the ATS segment, which includes serving the aviation industry, only grew by 5%.
Momentum, growth, profitability, and attractive valuation. This stock has a lot going for it. Celestica is my largest holding and I’ve recently added to it.