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Lately I’ve been exercising my brain over which companies to buy for my Stocks and Shares ISA next year – but am I guilty of overthinking it? These two FTSE 100 stalwarts look so solid that I’m tempted to de-activate my brain and buy them both without further ado.
As the UK high street endures a repeated beating, clothing and homewares retailer Next (LSE: NXT) stands tall. It’s even turned the retail meltdown to its advantage, snapping up Joules and MADE, and built large equity stakes in JoJo Maman Bébé, Reiss and FatFace.
While Mike Ashley’s Frasers Group has done the same, its luck appears to have run out lately with its shares down 34% this year. But the Next share price is up 22% (and a wowser 75% over three years).
Can Next continue to thrive in 2025?
Next retains a bricks and mortar presence, but has supplemented this with e-commerce growth while its Total Platform venture adds another string, selling marketing, warehousing and distribution services to third-party businesses.
Even the weather gods are smiling on Next, with an early cold snap lifting full-price sales by 7.6% in the 13 weeks to 26 October. The board forecasts 2024/25 pre-tax profits will climb 9.5% to a little over £1bn.
Even Next has risks. The upcoming increase to employer’s national insurance contributions will squeeze margins, as will the inflation-busting 6.7% minimum wage hike. Both come into force in April. If inflation returns to 3% as predicted, this will hit consumer spending power while driving up input costs.
Given their strength, Next shares look decent value at 14.95 times earnings. While 2025 could be tough for the UK economy, my investment horizons stretch much longer than that, and I expect this well-run company to thrive over time.
I also think HSBC Holdings (LSE HSBA) is also the closest investors can get to a no-brainer stock pick. Its shares are up 24% this year, and 75% over five.
HSBC looks a sound bet too
The board has also lavished loyal investors with share buybacks and dividends, funded from the proceeds of 2023’s bumper $30.3bn pre-tax profit. That was up 78% on the previous year, so it’s growing rapidly too. The trailing yield is a bumper 6.4%.
Despite their many charms, HSBC’s shares look good value, trading at 8.39 times earnings. That’s pretty standard for a FTSE 100 bank right now, to be fair. Asia-focused HSBC finds itself caught between the world’s two big superpowers – the US and China – and may ultimately have to choose between the two.
New CEO Georges Elhedery is alert to the threat and now plans to divide operations into eastern and western markets. Another risk is that the Chinese economy is continuing to struggle, and Beijing’s stimulus packages keep falling short. Yet that doesn’t seem to have affected HSBC so far.
I’m drawing up a hit list of companies to buy for my Stocks and Shares ISA, and these two are both on it. No brain power required. Well, maybe a little bit.
