1 investment I’m eyeing for my Stocks and Shares ISA in 2025

With only a few days left, I won’t have the money to buy anything in my Stocks and Shares ISA before the end of the year. But lately something has caught my eye as an opportunity for the new year.

Last week, FTSE 100 Distributor Bunzl (LSE:BNZL) saw its share price fall 7% in one day. The trigger was the recent trading update, but this could be my chance to buy a stock I’ve been watching for a while.

What’s new?

Bunzl’s latest report was a bit mixed. For 2024, sales are expected to be slightly below the previous year, with lower prices weighing on earnings.

This is bad news, but there are positive elements beneath the surface. Despite (or possibly due to) lower prices, volumes remained high and the impact of acquisitions helped drive sales.

However, the outlook was much more positive. Bunzl expects more significant sales growth in 2025, driven by both acquisitions and organic sales increases.

In addition, the company forecasts stable margins. These are higher than before the pandemic and are expected to remain so until 2025.

My investment thesis

I want to buy the stock somewhere below £33 (currently it’s slightly above). At this level the company’s market capitalization is just under £11bn and I see a path to a decent return at this valuation.

Over the next year the company is expected to return around £200m of its market capitalization to investors, in addition to a dividend yielding 70p per share. This initially corresponds to a return of around 4%.

The company also wants to invest £700 million in acquisitions. If this results in 3% annual growth, there is a chance of a 7% return, which I believe will increase over time.

The Bunzl share price fell to around £31 earlier this year, but I wasn’t determined enough to act. Given the opportunity again in 2025, I am determined not to miss this opportunity.

Risks

The risk with Bunzl is that acquisition opportunities either do not present themselves or are offered at high prices. That would be a problem for the company’s growth prospects.

The company believes it has a sustained pipeline of opportunities, but even the best investors make mistakes in this regard. So the risk cannot be overlooked.

What’s important to note about Bunzl, however, is that the company has stated its intention to return cash to shareholders if it can’t find companies to buy. And I think that’s the right approach.

If the opportunities aren’t there, a £700m return on investment wouldn’t be the worst outcome. At the prices I’m aiming for, it would be an annual yield of 6.3% with a dividend of 2.2%.

Buy the dip

The right time to buy stocks of quality companies is when they experience temporary downturns. And I think that’s what’s going on with Bunzl right now.

I understand why investors think buying a stock at a price-to-earnings (P/E) ratio of 22 when sales are falling is a bad idea. But beneath the surface, I think I would be missing out on an opportunity if I didn’t buy.