The Stocks to Buy Before 2025

The S&P 500 has had a banner 2024, with the S&P 500 returning 28% year-to-date through the first week of December. With portfolio mavens banking their profits, their attention turns to 2025 and what stock market sectors stand to help match or exceed those gains in 2025.

One area of interest is growth stocks, which should outperform with the changing guard in Washington, D.C.

That's the takeaway from the investment banking firm Jefferies, which recently issued a research note favoring growth over value as the calendar flips to 2025.

Desh Peramunetilleke, Jefferies’ global head of algo strategy, states that growth stocks should blossom with President-elect Trump taking office next January. Just like in 2016, during Trump's first term, growth stocks should have their day in the sun.

"Growth stocks (should) perform well in the early stages of Trump’s term, while the remaining phases are dominated by quality stocks and low-risk stocks," he states. Peramunetilleke also notes the ascent of growth stocks should “diminish the appeal of cyclical stocks" while the "slowdown in global trade growth and the restrained oil prices may weigh on the commodity equity index, cyclical stocks, and value stocks.”

Market watchers cite an uptick in small-cap stocks in late 2024 that supports growth strategies, but not without headwinds.

"As we approach 2025, the stock market is exhibiting signs of overvaluation, particularly among large-cap and mid-cap stocks, which have seen substantial gains year-to-date," says Michael Kodari, CEO at Sydney, Australia-based KOSEC Securities.

Kodari notes that this rapid appreciation has led to elevated valuations, making it challenging to identify growth opportunities without incurring significant risk.

"Notably, companies are often experiencing stock sell-offs despite surpassing earnings estimates, indicating that high valuations may already reflect anticipated performance," he adds. "Additionally, the Russell 2000 index has risen over 11% in November, suggesting that small-cap stocks are catching up to the S&P 500’s year-to-date gains."

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Potential Sector Winners for 2025

Market experts point to these sectors and stocks that should be on the rise next year.

AI. "I like AI as a theme," Bjegovic says. "Nvidia (NVDA) valuations are relatively high, but also justifiable by unusually strong growth. We could see their revenue peaking at some point, probably due to double and triple ordering, but we may not be there just yet."

"Whether that happens in 2025 is anybody's guess, "but if NVDA growth stalls, other AI-related stocks could get hurt even more," he adds.

Cyclical sectors: Thomas favors financials, energy, some consumer discretionary, metals, and mining in 2025. "Deploy an equal weight index exposure to reduce large-cap and tech dominance in portfolios and gold," she says. "Consider health care and China as a contrarian stance."

Amazon (AMZN). Currently trading at $220 per share, Amazon has plenty of tread on its tire heading into 2025. Analysts are lining up to back the stock, with Needham, Moffet Nathanson, and Redburn Atlantic issuing "strong buys" on the stock, with target prices of $250 (a 13% upside), $248, and $235.

And AMZN made news just this week that bodes well for its share journey: Apple (AAPL) is leveraging AMZN's cloud technology and semiconductors to run its AI systems. That's a big deal for Amazon as it looks to expand its AI chip brand.

"Nvidia and Microsoft (MSFT) are obvious choices for their dominance in AI and cloud computing, but Amazon is a stock to watch," says Antwyne DeLonde, a retired portfolio manager and CEO at Vision X in Towson, Md. "Its move into chip development is significant, and if successful, it could disrupt Nvidia's stronghold in the market."

Amazon also benefits from sky-high holiday shopping numbers in November and early December, with shoppers spending over $131.5 billion from November 1 to December 2, according to Adobe Analytics. That's a record high and a robust sign for retail kingpins like Amazon.

Watch for Potholes

Experts advise caution for investors who may get too aggressive on growth stocks in 2025.

"The S&P 500 was up massively over the past two years," Bjegovic says. "In 2023, it was up 24.2%, and so far this year, it is up about 28%."

Bjegovic cites Professor Jeremy Siegel’s book Stocks for the Long Run, which shows that the long-term average for stocks is about 8%.

"To get closer to that after back-to-back 20-30% gains, stocks would need to decline by 20-30% in one or multiple years," he notes. "Valuations are stretched, and anyone buying stocks now should be aware of potential 20-30% declines if they start to mean revert."

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