Finding Hidden Gems in the Stock Market
As we bid farewell to 2024, it’s clear that the stock market didn’t offer the same level of bargains as it did in the previous two years. However, savvy investors could still uncover some intriguing opportunities, particularly in rate-sensitive sectors like financials and real estate.
Uncovering Value in Financials
One such opportunity lies in Ally Financial (NYSE: ALLY), which significantly underperformed the broader financial sector in 2024. Despite a 12% decline, the stock presents an attractive proposition, trading at a 12% discount to book value. Ally’s focus on auto lending, a highly profitable business, is a major plus. With an average auto loan yield of 10.5% and a typical borrower FICO score above 700, there’s ample room for profit. Furthermore, if interest rates continue to fall, Ally’s deposit cost could decrease significantly, boosting its net interest margin.
A Real Estate Powerhouse
Realty Income (NYSE: O), a real estate investment trust (REIT), has been a long-term favorite of mine. With its stock down nearly 20% from its recent high, I’ve been aggressively adding shares to my portfolio. Realty Income’s business model is built for steady growth, with a diverse portfolio of 15,500 properties and a focus on recession-resistant tenants. The company’s impressive track record, including 109 consecutive quarters of dividend increases, is a testament to its strength.
Small Caps Offer Big Opportunities
The Vanguard Russell 2000 ETF (NASDAQ: VTWO) has been a significant allocation in my portfolio, and for good reason. The valuation gap between small caps and large caps is at historic highs, with small caps trading at a lower price-to-book multiple than their large-cap counterparts. Interest rate cuts and a more business-friendly climate could also provide a boost to smaller companies. With a low expense ratio of 0.10%, the Vanguard Russell 2000 ETF offers an attractive way to tap into the small-cap market.
A Long-Term Focus
While these investments may not be immune to short-term market fluctuations, I believe they offer excellent long-term opportunities. As we head into 2025, I plan to continue adding to these positions, taking advantage of their attractive characteristics and potential for growth.
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