Picking stocks is about predicting the future. As investors can tell you, being early to spot a trend and betting on a company poised to ride it can translate to a handsome return. Those who bought Amazon in 1998, for example, or Tesla in 2012, or Nvidia in 2020 correctly foresaw the respective explosions of online shopping, EVs, and the AI revolution—and made out like bandits.
Of course, this isn’t easy to do. One issue is timing. A thesis about the future of a sector might be correct, but it may still be years away. Betting on the right sector but the wrong horse can also be painful, as investors in bankrupt EV maker Fisker or fallen chip giant Intel can attest.
In the past, a relatively safe way to invest in macro trends has been to buy so-called cyclical stocks (think travel or entertainment) when the economy is on an upswing, and defensive ones (think consumer staples) when times are bad. Today, though, broader forces like tech transformation and geopolitical upheaval have made this model less reliable. In recent years, for example, utility stocks—a classic defensive play—have been on a tear, while the dominance of the tech-heavy group of stocks known as the Magnificent Seven has been a bigger story than any discrepancy between cyclical and defensive stocks.
The investment landscape may grow more unpredictable still as Donald Trump prepares his return to the White House. Nonetheless, Fortune’s finance team put our heads together to come up with stock ideas for the coming year. We began by identifying five trends, and then picking three companies set to ride each of those waves in 2025. In some cases, our picks reflect the ongoing march of technology. Other trends such as geopolitical risk—named by CEOs in a recent Deloitte-Fortune survey as having the biggest potential to create disruption—and health and wellness reflect broader political and social shifts. Finally, markets are unpredictable, so treat the stock picks noted here not as advice, but as a departure point for your own research into which companies might shine in the coming year. —Jeff John Roberts
Picks from the experts
Trend 1: Conflict and geopolitics
In recent years, the world has become more dangerous as war has broken out in the Middle East and on Europe’s doorstep in Ukraine, while tensions remain high in the Taiwan Strait. According to the think tank Institute for Economics & Peace, there are currently 56 armed conflicts around the globe, the highest number since World War II. Meanwhile, numerous reports show a year-over-year double-digit increase in cyberattacks, as bandits and national armies seek to steal data and wreak havoc.
These trends are worrisome but also present an opportunity for investors. The conflicts around the globe have produced a shortage of weapons, particularly missiles and missile defense, making companies that cater to militaries a good bet for 2025.
Ron Epstein, a senior analyst at Bank of America, says the U.S. is expected to spend around $1 trillion on defense next year, and that he has buy ratings on all the major companies in the sector. But he singled out RTX (ticker RTX) as occupying a particularly strong position thanks to its Raytheon division’s “fantastic missile franchise” and because its military business is complemented by a successful commercial aircraft unit.
Those with qualms about investing in weapons may prefer to put their money into the cybersecurity sector instead. There are a host of publicly traded companies that tout their ability to protect networks and thwart cyberattacks, including the growing number of attacks generated by AI. But performance across the sector has been uneven, as underscored by CrowdStrike, which issued a faulty update in July that grounded Delta’s fleet of planes and cost the airline and other clients billions of dollars
One cyber company on an upswing is Fortinet (FTNT), based in Sunnyvale, Calif., with well over $5 billion in annual revenue. Like others in the sector, it does not issue dividends and has a fairly high P/E ratio. At the same time, Fortinet’s share price has handily outperformed the broader market and most of its peers. Founded in 2000, the company is a trusted name in the industry and offers a wide variety of services, catering to a range of sectors such as finance, health care, education, and government.
Some investors who foresee global turmoil roiling markets may prefer to avoid individual company stocks altogether, and bet instead on volatility and uncertainty itself. While there are ETFs that loosely track the so-called VIX fear gauge, such plays are for sophisticated, active investor and don’t belong in a buy-and-hold portfolio. A better option for those betting on ongoing turmoil is old-fashioned gold—specifically, through an ETF like SPDR Gold Shares (GLD) that permits you to hold the yellow metal at a reasonable cost. While GLD prices sank in November after the election of Donald Trump, many expect the ETF to continue its recent strong run. Goldman Sachs predicts gold will reach more than $3,000 an ounce in 2025, as conflict and trouble keep the world on edge. —J.J.R.
Trend 2: A return to luxury spending
This year has not been kind to the luxury sector. The share prices of upscale companies like Burberry Group, Kering, LVMH Moët Hennessy Louis Vuitton, and Movado are all down year to date. This is the result of Americans tightening their purse strings, but also because Chinese consumers—one of the luxury sector’s most important pillars—are feeling pinched by the country’s real estate crisis.
But all this offers an opportunity for the discerning investor, says Jelena Sokolova, a senior equity analyst at Morningstar. For the past 30 years, data shows that a luxury down cycle hasn’t lasted more than one to three years—pointing to how high-end consumers can’t stay away from the finer things in life for long.
Typically, the industry bounces back quite strongly after those downturns,” says Sokolova. “For a long term perspective, I think there is still potential there.”
For the best bets in the luxury space, long-term brand preservation is everything, says Deiya Pernas, cofounder of Pernas Research. Whether the brand “stays true to its heritage” is a key differentiator in this sector, he says, as is its ability to expand its offerings into new categories.
According to Sokolova, one brand well poised for a luxury market rebound is Prada (PRDSY), thanks in part to Miu Miu, its stylish sister brand and an up-and-coming industry power player. Its popularity among younger consumers—including those likely to benefit from an upcoming massive intergenerational wealth transfer—has helped the Italian fashion house defy the larger luxury downturn, as Miu Miu notched an eye-popping 105% year-over-year increase in retail sales in the third quarter, to around $347 million. Meanwhile, revenues for the larger Prada fashion group were up in nine months to $4.1 billion, an 18% jump.
Another standout in the sector is ultra-luxury brand Hermès (HESAY), whose clientele consists of the 1% of the 1%, and which has been largely insulated from the slump that has seen the share price of rival LVMH fall over 10% year to date. The French-listed Hermès, in contrast, has reported double-digit sales growth every quarter this year. While other luxury brands have been disproportionately affected by slipping sales from their aspirational client segments, Hermès has more customers than it can materially accommodate: The wait lists for its most-sought-after products, the $10,000-plus Birkin and Kelly handbags, continue to grow, as the world’s wealthiest clamor for something they can’t simply walk in and buy off the shelf. Meanwhile, shares of Hermès competitor Kering (KER.PA) are down over 40% year-to-date but analysts expect a bounceback, making this luxury brand a potential bargain. —Alicia Adamczyk
Trend 3: A huge appetite for energy
The world is consuming more energy than ever—and the trend is going in only one direction. Consider that a single Google search consumes 0.3 watt-hours of electricity, according to the International Energy Agency, but a similar query on OpenAI takes 2.9 wh. And then there are electric cars and our growing collection of always-on gadgets, which contributed to a global record for energy consumption last year, according to the Energy Institute.
Powering all this is an increasingly diverse set of energy sources—all of which offer opportunities for investors in 2025.
In a sign of the times, the AI boom is poised to resurrect Three Mile Island in Pennsylvania, the site of the worst nuclear accident in U.S. history. The plant’s owner, Constellation Energy (CEG), will spend $1.6 billion over the next four years to restart its undamaged Unit 1 reactor, betting that nuclear has the potential to deliver a massive revenue boost. The bet looks promising, as the company has already signed a deal with Microsoft to supply the software giant’s data centers with nuclear power for at least the next 20 years.
The share price of Constellation, America’s largest owner of nuclear plants, has more than doubled this year. Wall Street expects the company to post yearly earnings growth of 30% for 2024, while Visible Alpha predicts free cash flows could reach $1.5 billion.
Building new plants is a regulatory nightmare, notes CFRA Research’s Daniel Reuven Rich, which gives existing operators an advantage. “They’re the only game in town,” he says, and it’s become a lucrative one.
A thousand miles south, and 250 miles off the coast of New Orleans, the oil and gas company TechnipFMC (FTI) is building an elaborate network of manifolds and umbilical cords for between $250 million and $500 million to help oil giant BP extract 80,000 barrels of oil a day. Last quarter alone, the U.K.-incorporated company doing business from Houston secured $2.5 billion in subsea orders, adding to a backlog of $14.7 billion. Shareholders received $394 million in dividends and share buybacks in the first nine months of 2024 alone.
But ATB Capital Markets analyst Waqar Syed says that’s only the beginning. Even as the company is projected to pull in around $9 billion in annual revenue, Syed says the backlog means not all the cash has been counted. “Orders are coming in at a much higher rate than the revenues are,” he says. “At some point their revenue is going to catch up.” Syed predicts FTI’s future cash flows will increase 76% in 2025 to $859.2 million, and the company has committed to return at least 60% of its future cash flow to shareholders.
Looking abroad, it may be a good time to consider Spanish energy giant Iberdrola (IBDRY). Through its public U.S. subsidiary, Avangrid, it has doubled down on its renewable investments in the U.S., particularly with offshore wind. The company has pumped a combined $13.28 billion into projects in America and the U.K. over the past year, helping drive a 50% boost in net income through the first nine months of 2024. —Michael del Castillo and Greg Mckenna
Trend 4: AI, AI, and more AI
Since the launch of ChatGPT in November 2022, the explosive demand for artificial intelligence has driven a broader stock market boom. Public companies directly tied to the field have seen their market caps skyrocket, while industries even tangentially related to AI—such as the once-unloved utility sector—have enjoyed a bump. Given all the hype, skeptical investors may fear the sector has crossed the line from boom to bubble, but many analysts say AI stocks still have room to run.
Starting with pure plays, it’s hard to bet against the company at the heart of the AI boom: Nvidia (NVDA). There is a ravenous appetite for its flagship GPU chips from a wide variety of companies scrambling to keep pace in the AI era. One analyst closely following the company, CFRA Research’s Angelo Zino, said that Nvidia’s total addressable market is only set to expand. Its sales totaled $30 billion last quarter, up 122% from a year ago, and Zino expects the figure to surge upwards of $50 billion in two years’ time. He expects quarterly free cash flow to soon exceed that of every firm but Apple.
It also stands to reason that Nvidia’s most deep-pocketed customers are the best positioned to make the necessary capital expenditures. “The big are only going to get bigger,” says Baird’s Ted Mortonson. “The monopolies are going to get more monopolistic.” Even among the giants of Big Tech, Microsoft (MSFT) is the leading high roller, with Bloomberg Intelligence projecting the company’s capital outlay could hit $53 billion this year. That capex is already generating sales, according to CEO Satya Nadella, who says Microsoft's AI business is on track to surpass an annual revenue run rate of $10 billion.
Microsoft has invested $14 billion alone in OpenAI since 2019—the main reason Mortonson believes the Seattle-based cloud titan is the best pick among the traditional tech outfits. Shares recently had their worst day in two years after the company forecast cloud growth to slow next quarter, presenting a potential opportunity to “buy the dip.”
That may also be the case in application software, a sector yet to realize the benefits of AI. Salesforce (CRM) has been far from a Wall Street darling recently, with the stock trailing the S&P 500 and posting revenue growth in the single digits. Zino, however, believes the company is well positioned to deliver on so-called agentic AI—think autonomous digital assistants that put generative AI into action. “We think by the end of 2025 there are going to be a lot of investors that really kind of warm up to the Salesforce story,” Zino said. Not everyone agrees. Mortonson, for example, prefers cloud computing platform ServiceNow, which benefits from a close partnership with Nvidia. For those who believe in Salesforce’s long-term AI prospects, however, buying now could prove a bargain. —Leo Schwartz and G.M.
Trend 5: Health and wellness
According to a report by the Sports & Fitness Industry Association, the number of people getting active has increased every year for a decade. The report adds that threefourths of the U.S. population, or 242 million people, participated in at least one sports or fitness activity in 2023, a 2.2% bump from 2022.
For investors looking to capitalize on this trend, the sporting-goods sector is a solid bet. According to David Swartz, a Morningstar senior equity analyst, the field includes names like Adidas, Lululemon, Under Armour, and Puma. But he says one company stands out above the others. “Nike (NKE) has a closer relationship with global and American sports than any other company,” Swartz tells Fortune.
Nike’s stock has been pummeled this year over strategic missteps, including a failure to develop new products and a disastrous decision to favor direct-to-consumer distribution. But Morningstar believes it is now undervalued compared with its long-term fair value estimate of $117 per share. Morningstar forecasts compound average sales growth of 5% over the next 10 years, and expects Nike will achieve compound annual revenue growth of 2% in North America.
Nike’s stock hit an all-time high of $177.51 in November 2021, but has since dropped by almost 50%. Swartz believes the company is poised for a comeback now that longtime Nike exec Elliott Hill is at the helm—he returned in October—and that Nike “will benefit from the growth of sports, both in the U.S. and globally.”
Alongside the trend in increased physical activity is a new focus on self-care. This includes technology that identifies health risks for women, including breast cancer detection. A leading player in the field is Hologic (HOLX), a health care company with around $4 billion in annual revenue that provides 3D mammography technology. It has an 80%-plus share of the U.S. mammography imaging market and 30% internationally, according to Andrew Brackmann, a William Blair equity research analyst.
Hologic, which has about 7,000 employees, also offers a range of tests for sexually transmitted infections as well as COVID-19. Since 2021, Hologic has scooped up seven companies and grown earnings at a roughly 10% compound annual growth rate over the past decade, Brackmann tells Fortune. Hologic’s stock is up about 16% this year.
The growing field of prenatal diagnosis also offers an opportunity for investors, especially as preterm births in the U.S. have jumped by more than 10% in the past decade. In this field, Brackmann recommends a small firm called Sera Prognostics (SERA), which has created a blood test, called PreTRM, that helps identify which women may deliver prematurely. “There is a massive market need,” he says.
Sera, which employs around 63 people, went public in 2021 but has never traded at or near its $16 IPO price. In August, Sera said it plans to publish the results of its PRIME study for the PreTRM test in the spring of 2025. Sera hasn’t gotten much traction with doctors, who have asked for more data, Brackmann says. “When the publication comes out it will generate a lot of buzz,” he notes. He expects Sera, which currently has negligible revenue, to bring in more than $100 million over the next three to five years. —Sheryl Estrada and Luisa Beltran
How we did
Looking back at Fortune's stock picks for 2024
At a time when the country was reeling from soaring prices, Fortune set about to pick 13 “inflation-proof” stocks. How did we do? In the 12 months since we published in November 2023, the benchmark S&P 500 delivered a 34% total return. Our portfolio: 51%.
That’s not to say all our picks were winners. Two were blockbusters: chip darling Nvidia (total return, 193%) and big data company Palantir (179%). Other outperformers included e-commerce giant Mercado Libre and hefty dividend payers Kinder Morgan (pipelines) and Boston Properties (real estate).
The other eight trailed the S&P, though none delivered negative returns. (Procter & Gamble, the worst performer, still gained 6%.) But overall, the home runs far outweighed the strikeouts. —Matt Heimer
This article appears in the December 2024/January 2025 edition of Fortune with the headline "5 trends for 2025 and how to invest in them."
