3 "Buy the Dip" Plays for 2025

2024 was a good year for stocks, with the S&P 500 up 26.6% for the year. The economy grew more robustly than many expected while the Federal Reserve began cutting interest rates, making credit and lending less expensive and giving businesses and consumers some financial breathing room.

Market experts generally expect more of the same in 2025.

That’s created a great opportunity to “buy the dip” in these three stocks.

“Inflation may have ticked a bit higher in November but basically looks tamed to me," says Rich Smith, a contributing stock analyst at The Motley Fool who tracks approximately 400 stocks. "If the incoming Trump administration can keep a lid on government spending, I really think we may have achieved our hoped-for “soft landing” of the economy post-Covid."

Modest GDP growth projections — Goldman says 2.8% — make Smith "moderately bullish" for 2025, and he sees no reason not to be a market buyer into the New Year. "That's especially the case with sectors whose 2024 underperformance has wrung out some risk," he added.

Those downtrodden sectors include select stocks that should rebound in 2025, with these "buy the dip" sectors and stocks at the top of the list.

The auto sector. Few parts of the stock market got hit harder in 2024 than the automotive industry, with interest in EVs trending lower in 2024. "That helped drag the sector lower," Smith says. "Yet that’s not necessarily a bad thing for the survivors, however, who will face less competition heading into the New Year.”

In particular, one underperforming auto stock stands out.

“Honda Motor Co. (HMC) is in the news right now over its proposed merger with Nissan," Smith notes. "I’m ambivalent on the merger itself, as Nissan seems as likely to drag Honda down as to build it up through greater scale of production."

Honda itself, however, looks very attractive heading into the new year.

"Honda stock costs only seven times trailing earnings and pays a 4.08% dividend yield, so any growth should be plenty to make this stock a buy, giving it a total return ratio of 1.0 or less," Smith adds. "Wall Street analysts also forecast better than 3% annual growth over the next five years. To me, that makes Honda stock a good bet to outperform in 2025 and beyond.”

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Intel (INTC). No doubt, Intel has struggled in 2024, with its share price down 59% for the year. Yet some Wall Street traders see INTC popping in 2025.

"Intel was removed from the Dow Jones Index in November and replaced by Nvidia (NVDA)," says Vince Stanzione, a long-time" trader and founder of First Information, a publishing business specializing in training courses and educational materials related to financial spread betting and derivatives trading. "There is no doubt Intel has lost its way and could have done much better with more AI focus."

Stanzione says he's waiting on a new Intel CEO, adding that whoever takes over must make "serious" changes. "Still, I see some good potential for a bounce in 2025," he says. "At $20 a share, this is an interesting entry point with a 50% potential bounce in 2025."

Walgreens Boots Alliance (WBA)

Stanzione also likes Walgreens Boots Alliance (WBA), which is down 63% year-to-date and will need to restructure in 2025.

"There's a possibility of private equity making a bid for all or part of the company," he says. "With shares trading near $9, I see a good potential for at least a 30% pop in the equity; whilst that will not help long-suffering shareholders, those buying now have the opportunity to profit."

There is one caveat with WBA. "The dividend is likely to be canceled, so don't count on the 10% yield," Stanzione noted.

Three Tips on Buying on the Dip

On Wall Street, there's almost nothing sweeter than buying an underperforming lagger and watching it pop. Just don't do so until you have a trading battle plan. These three tips can help get the job done.

Know where you stand. Never commit money to a "buy the dip" stock if you can't afford to lose the cash. Work with a trusted financial advisor to deploy the optimal amount of cash to buying underperforming stocks that, despite your best-laid plans, may or may not rise in price. Also, consider whether that cash could be better used to pay down debt or beef up an emergency fund.

Make sure to use a stop-loss trading strategy. Akin to an insurance policy, a stop-loss tactic enables you to buy a stock and avoid significant price declines. For instance, if a "buy the dip" candidate stock falls from $30 per share to $20 per share, you can put a stock loss order to sell the stock at, say, $15 if the price declines further.

Leverage dollar-cost averaging to buy at the dip. When you buy smaller bundles of stock regularly, you can curb upside and downside risk via dollar-cost averaging. DCA allows you to get a better price when the stock price declines, yet as long as you keep investing, you won't miss out on a stock's gains when the price rises.

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