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Considering the big gains made across the pond in 2024, UK-focused investors will surely be hoping for a more prosperous 2025. With this in mind, I’ve been scanning the FTSE 100 index for growth shares that investors with the goal of beating the market over the next 12 months might want to consider buying now.
Contrarian pick
Pest control giant Rentokil Initial (LSE: RTO) may seem like a strange choice. Holders had a poor 2024 with its shares ending the year 7% lower than where they started. However, it could have been far worse. By mid-October, that loss stood at over 20%!
A lot of this poor form has been down to concerns over rising costs and problems relating to its acquisition of US-rival Terminix. In October, the company announced that synergies from the latter’s integration would be hit by a two-to-three-month delay. Clearly, this was never going to go down well with an already-skittish market. Any further delays could easily make a bad situation worse.
On sale
If there’s an upside to all this, it’s that Rentokil Initial’s valuation has tumbled.
Sure, a forward price-to-earnings (P/E) ratio of 18 doesn’t scream ‘bargain’. But it’s an awful low lower than the firm’s five-year average of 34.
It’s worth noting that there’s not a lot of interest from short sellers in the stock either. Put another way, few traders seem to believe that the share price has further to fall.
I’m inclined to agree, especially if management’s cost-saving strategy (also announced in October) has worked. Any chink of light in March’s full-year results could see a rebound in demand for the stock.
Growing interest
Property portal Rightmove (LSE: RMV) could also have a great 2025. In fact, I wonder if the share price could do particularly well in the first few months due to prospective buyers wanting to avoid April’s rise in stamp duty.
Backing this up, the Royal Institution of Chartered Surveyors recently reported that its members — estate agents and surveyors — were receiving more enquiries and seeing more sales going through. I reckon this all bodes well for Rightmove’s next set of full-year numbers, due at the end of February.
In contrast to Rentokil Initial, the stock performed pretty well in 2024, benefitting from interest rates finally beginning to be cut. However, the real boost came as a result of multiple, if ultimately rejected, takeover bids from REA Group.
Quality stock
Of course, now that takeover talk has died down, there’s an argument for saying that the shares might lose steam. A longer-than-expected bounce in inflation, and the consequences this would have for interest rates, could also impact sentiment. And what happens when that stamp duty rise kicks in?
As things stand, Rightmove shares aren’t exactly cheap either, changing hands for 22 times forecast FY25 earnings. That’s a far higher price tag compared to the average UK stock.
However, as at Rentokil Initial, that valuation is far below the company’s average P/E over the last five years. I also think it’s fully-justified given the £5bn cap’s incredible margins, solid finances and market dominance.
And who is to say another takeover approach won’t be made in 2025?
