2 Stocks I’d Avoid in 2025 (and 1 I’d Buy)

Some sectors, and companies therein, may not have a great year next year. But there is one that could blast off!

In 2025, certain stocks and sectors on the TSX are facing notable challenges. And these are challenges investors should be aware of when considering their portfolios. Today, let’s dive into why investors should perhaps avoid some areas of the market, whereas others are set to take off.

A worker wears a hard hat outside a mining operation.

Source: Getty Images

Avoid: Algonquin Power

Algonquin Power & Utilities (TSX: AQN) has been facing significant financial difficulties, largely due to its high debt levels and underperformance. With over $8.4 billion in debt and a debt-to-equity ratio of 108.5%, the company’s financial flexibility is highly constrained​.

What’s more, its profitability metrics have been underwhelming, with a mere 1.6% return on assets (ROA) and 0.24% return on equity (ROE). This paints a bleak picture for future growth, especially in a capital-intensive industry like utilities. Despite interest rates coming down, which may alleviate some financial pressure, AQN’s debt remains a heavy burden.

The utilities sector in general is facing challenges, and AQN’s struggles are amplified by declining revenues. In its most recent earnings report, AQN posted a 4.7% year-over-year decline in revenue​. This decline, paired with the company’s high payout ratio of over 273.6%, shows that its 5% dividend yield may not be sustainable in the long term. Investors looking for reliable dividend stocks should be cautious, as AQN’s financial health could continue to deteriorate, impacting future payouts.

Avoid: Allied Properties

The commercial real estate sector, particularly office space, continues to face challenges as hybrid and remote work remain prevalent. Allied Properties REIT (TSX: AP.UN) has been hit hard by high vacancy rates, leading to a significant decline in its earnings. Its recent earnings show a staggering -89.9% profit margin​. Plus, it holds a total debt load of $4.3 billion, further compounding its problems​. As demand for office spaces declines, Allied’s future outlook remains uncertain, with its reliance on commercial properties making it vulnerable in the current market environment.

The TSX stock has struggled with effective management decisions in an environment where commercial real estate is facing long-term structural changes. Its most recent quarterly earnings reveal a 77.4% year-over-year decline in quarterly earnings growth​. The future outlook for the TSX stock remains challenging as demand for office space is unlikely to rebound quickly. Investors should be cautious about Allied’s heavy exposure to the commercial office sector – a sector that could experience prolonged difficulties even as interest rates decline.

Consider: Lundin Mining

Unlike AQN and Allied Properties, Lundin Mining (TSX: LUN) offers a much more optimistic outlook. Lundin has posted impressive growth metrics, including a staggering 84.1% increase in quarterly revenue growth year-over-year​. The TSX stock has a relatively healthy balance sheet with manageable debt levels and a current ratio of 1.5, indicating solid liquidity. Moreover, Lundin’s forward Price/Earnings (P/E) ratio of 14.9 suggests that it is attractively valued compared to peers in the mining sector​. This positions Lundin as a compelling buy for investors seeking exposure to commodities, especially given strong demand for metals.

Lundin Mining’s financial performance also stands out in terms of earnings growth. The company has seen impressive 105.7% year-over-year growth in quarterly earnings​ – a sign of strong operational efficiency and the ability to generate profits even in a volatile market. As global demand for metals remains robust, particularly for infrastructure projects and renewable energy technologies, Lundin is well-positioned to benefit from these trends.

Bottom line

When comparing the financial stability and future outlooks of these three companies, Lundin clearly emerges as the strongest option. AQN’s struggles with high debt and declining revenue, along with Allied Properties REIT’s exposure to a struggling commercial real estate market, make these stocks risky bets for 2025. In contrast, Lundin’s solid financials and growth potential, particularly in the booming mining sector, make it an attractive buy for long-term investors.

Meanwhile, investors should carefully consider the risks associated with AQN and Allied Properties REIT in 2025. Both companies face significant headwinds that could continue to weigh on their financial performance. Investors looking to navigate the TSX in 2025 should be cautious of over-leveraged and underperforming stocks like AQN and Allied Properties. All while keeping an eye on promising sectors like mining, where Lundin stands out.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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