The stock market wasn’t as bargain-packed in 2024 as it was in 2022 and 2023, but there were still some interesting opportunities. This was especially true in rate-sensitive sectors like financials and real estate, and while the mega-cap stocks outperformed, smaller companies as a whole did not.
With that in mind, I did quite a bit of buying throughout the year. And while I put money into more than a dozen different stocks and ETFs in 2024, here are three in particular that I bought several times.
A bank stock with a lot to like
Ally Financial (ALLY 0.61%) dramatically underperformed the overall financial sector in 2024, with a decline of 12% for the year versus a gain of 30% in the Financial Select Sector SPDR ETF (XLF 0.08%). And most of the poor performance can be attributed to a sharp decline in the stock after its third quarter earnings report showed a jump in loan delinquencies.
However, there’s a lot to like about Ally, especially with the stock trading for a 12% discount to book value.
For one thing, auto lending (Ally’s focus) can be a highly profitable business. The average auto loan originated by Ally in the third quarter had a 10.5% yield and the typical borrower had a FICO score well above 700. Even with the recently elevated 2.24% annualized charge-off rate, there’s plenty of room for profit.
In addition, Ally could be a big beneficiary as rates fall. It has a deposit cost of about 4.2% right now, but this could get significantly lower if the Fed keeps cutting rates. The bank currently has a healthy 3.22% net interest margin, but management sees this expanding to 4% or higher in the medium term.
I’ve been building this position for over 10 years
Realty Income (O 0.59%) was the first real estate investment trust, or REIT, I ever bought about 10 years ago, and I’ve been opportunistically adding to my investment ever since. With the stock down by nearly 20% from its recent high, I’ve been adding shares rather aggressively over the past couple of months.
Realty Income’s business is doing quite well. The company owns about 15,500 properties, and is built for steady growth over time. Most tenants are in businesses that are recession-resistant, not vulnerable to e-commerce disruption, or both. And the tenants sign long-term “net” leases that make them responsible for taxes, insurance, and most maintenance expenses.
The proof is in the performance. Realty Income stock has a current yield of about 6% annually, and the dividend has been increased for 109 consecutive quarters. Since going public in 1994, Realty Income has produced a 14.1% annualized total return, handily outpacing the S&P 500.
There’s a massive opportunity to keep the growth story alive for many years to come. The market opportunity for net lease real estate in the United States alone is estimated at $5.4 trillion in size, and is even larger in Europe, where Realty Income also operates.
My top ETF to buy right now
The stock I put the most money into in 2024 wasn’t an individual stock, but an ETF. The Vanguard Russell 2000 ETF (VTWO -0.35%) is the position I allocated the most of my new money to, and for a few reasons.
For one thing, the valuation gap between small caps and large caps is excessive right now, to put it mildly. At the start of 2024, small caps were trading at a lower price-to-book multiple compared with their large-cap counterparts than at any time since the late 1990s. And thanks to the stellar performance of mega-cap tech companies this year, the gap has become even wider. In fact, the weighted average component of the S&P 500 trades for five times book value. For the Russell 2000, the average P/B multiple is just 2.1.
Interest rate cuts could also be a big catalyst, as smaller companies tend to be more debt reliant as a group. They could also be a disproportionate beneficiary of the more business-friendly climate that is expected to come with the incoming Trump administration.
The Vanguard Russell 2000 ETF is a great way to get exposure to small caps without relying too heavily on any one company. And with a 0.10% expense ratio, the investment fees are minimal.
What is in store for 2025?
To be perfectly clear, I’ve been accumulating these three investments because I think they’re excellent long-term opportunities, not because I think 2025 in particular will be a great year for their stock prices. If rates stay higher than expected or the economy doesn’t stay strong, these stocks could certainly be under pressure.
Having said that, all three of these have some characteristics that make them look like excellent opportunities as we head into 2025, and I foresee adding even more to all three of these positions in my portfolio over time.
