4 Cyclical Stocks to Buy for 2025 Tom Yeung here with your Sunday Digest. In 1909, a young physics graduate student proposed building a magnetically levitated train inside a vacuum tube. Not only would magnetic forces propel the train forward... but the lack of friction between car and rail meant momentum would be enough to keep a “maglev” train in near-perpetual motion. A working model would have theoretically moved at 2,500 miles an hour – fast enough to travel from Boston to New York in under 15 minutes. Alas, the technology for maglevs didn’t exist in 1909. Linear motors would take another 40 years to appear, and the first commercial maglevs weren’t built until the 1980s. Even now, few maglev trains can travel faster than 300 miles per hour because no one has yet invented a way to build and maintain inter-city vacuum tubes. The 1909 graduate student – a young Robert H. Goddard – eventually became famous for inventing the liquid-fueled rocket instead. Perpetual-motion machines continue to exist only in the vacuum of space and in human imaginations. At first glance, the U.S. stock market seems to have become a perpetual-motion “maglev.” High-performing stocks seem to keep going up indefinitely, while struggling ones fade away. In 2024, investors buying the 25 top-performing S&P 500 stocks of 2023 would have yielded a 35% return. That compares to the average 13% return of all S&P 500 stocks, and a -12% return for the 25 lowest-returning stocks of the index. The best-performing company of 2023, Nvidia Corp. (NVDA), compounded a 239% return that year with another 171% increase in 2024. This “perpetual motion” strategy has also worked in other recent years. In 2016, 2021, and 2022, expensive stocks became even more pricey. So, one easy stock-picking strategy for 2025 is to buy high-performing stocks from 2024 and hope for the best. Yet, everyone knows that stocks cannot go up forever. Every company eventually reaches a plateau, and most firms eventually face a decline. After all, no firm has yet lasted forever. In addition, many sectors see seasonal effects. This is particularly true in retail, travel, and energy stocks, where certain times of the year are better than others. Natural gas companies, like Cheniere Energy Inc. (LNG) have historically performed best during the cold winter months when gas prices go up. (Cheniere has risen 20% on average in the first three months of the year since 2009.) And retail stocks typically see a “Santa Claus Rally” toward the end-of-year when American shoppers open up their wallets in time for the holidays. To help investors navigate this cyclicality, my colleagues at TradeSmith will be unveiling their biggest financial breakthrough in 20 years. In an upcoming presentation on January 8 (go here now to save a seat), they will explain how their breakthrough can predict the biggest jumps on 5,000 stocks – to the day – with back-tested 83% accuracy. And you can try it out for yourself before that presentation next week. Click here to try it out and to reserve your spot for the event. In the meantime, I’m also betting on a broader reversal for 2025, where many cyclical stocks bounce back and the most expensive ones flatline. It’s why, in December, my top stocks to buy for 2025 included three cyclical Dividend Kings, companies I expect will double the average return of the blue-chip Dividend Aristocrat index, and generate twice the dividend yield. This list included Dollar General Corp. (DG), which should surge back from 2024 lows as optimism among rural customers returns. I additionally included two turnaround Growth Stocks with 40% to 80% upside. Today, I’m pleased to reveal four more top picks to round out my list of conservative, cyclical stocks to buy in the year ahead... | Recommended Link | | | | It could double your portfolio by foreseeing the biggest stock jumps in 2025 – to the day – with 83% backtested accuracy. Already, it would’ve pointed to gains of 250% in 38 days on (TTWO)… 101% in 10 days on (WSM)… 353% in 48 days on (AON) and more in our study. You can try it yourself on 5,000 stocks, right now, free of charge. Click here. |  | | Dividend King 1: Sensing a Turnaround In October, I introduced today’s first Dividend King as a promising small-cap AI stock to buy. The company is one of the key legacy U.S. automotive suppliers for electrical components and sensors, and the rise of AI-powered self-driving vehicles promises to increase demand. The company’s extremely cheap valuation tells me we can expect a strong 2025. As a reminder, Sensata Technologies Holding PLC (ST) is a top-tier automotive supplier known for its flawless operating history. The company, which was spun out of Texas Instruments Inc. (TXN) in the mid-2000s, now focuses on mission-critical sensors that are built to withstand harsh environments. This includes electrical sensors that prevent failures in high-voltage EVs, fuel injection monitors, tire pressure gauges, and more. Its excellent safety record has allowed the firm to charge premiums, keeping its returns on capital invested high. In October, I also noted that the self-driving vehicle revolution will provide a significant tailwind for this $5 billion firm. Autonomous vehicles have more sensors… more electrical components… more mission-critical components than their traditional counterparts. And these higher stakes mean that automakers will be relying on Sensata even more than they already do for electrical sensors and components. Analysts forecast revenue growth will accelerate from zero this year to 8% by 2026, and that earnings per share will rise twice as quickly thanks to greater value added. I’m now particularly excited for Sensata because markets have priced the blue-chip firm at an irresistible discount. Shares trade at just 8.0 times forward earnings, compared to its long-term average of 13.5X. Valuations based on cash flows look equally attractive, given Sensata’s historical ability to convert accounting profits into cash. Its 1.8% dividend yield appears only “average” compared to Dividend Aristocrats since the company retains three-quarters of free cash flow for future growth. Dividend King 2: Playing Defense Today’s second Dividend king is a specialty chemical maker that will take patience to play out. In late October, management announced they would cut the dividend by 95% for 2025 to ride out a cyclical downturn, surprising even relatively bearish analysts. Shares have since plummeted 45%, and analysts expect no significant growth until 2026. However, the extreme selloff now makes this company too cheap to ignore. Celanese Corp. (CE) is the most profitable among the “Big 3” U.S. specialty chemical manufacturers, which also includes Dow Inc. (DOW) and Eastman Chemical Co. (EMN). Celanese has access to low-cost natural gas at its Clear Lake, Texas, plant and has used this to earn returns 30% higher than industry averages. The firm also has a long history of solid profitability. It has generated positive net income for 20 consecutive years and used this cash flow to acquire rivals. It now owns DuPont’s former mobility and materials business and Exxon’s former elastomers segment, creating value-added markets for its specialty chemicals. Finally, Celanese’s end markets will eventually recover. The Irving, Texas-based firm is the lowest-cost American producer of acetyl chain products – essential chemicals used as the base of everything from paints to pharmaceuticals. There is broadly no alternative yet for Celanese’s products. It has a strong “moat.” That makes Celanese’s current $69 price tag too good to ignore. Shares trade at a modest 8.5 times forward (depressed) earnings, and a return to midcycle profits would price shares at around $125, an 80% upside. Though this value might take two to three years to play out, the potential long-term upside makes Celanese too good of a Dividend King to pass up. Growth Stock 1: The Big 2025 Bet In the late 1800s, a New York surgeon named William Coley observed that one of his near-death patients with a neck tumor made a surprising recovery after catching a severe bacterial skin infection. Coley reasoned that the infection had triggered his patient’s immune response, and used this observation to help treat bone cancers – often effectively. Researchers have since gained an understanding of how this works. In the 1960s, scientists discovered T-cells, the white blood cells responsible for removing cancerous cells. By the 1990s, scientists had developed immunotherapies using laboratory-made proteins to harness these cancer-beating cells. Today, the most significant promise of immunotherapy now lies with “cancer vaccines,” therapies that aim to train the immune system to recognize and fight tumors. As The Economist magazine outlines: When scientists first began to sequence the DNA of tumours, in 2008, they found that cancer cells contained hundreds, if not thousands, of mutations that distinguished them from their healthy neighbours. Some of these mutations in cellular DNA cause cancer cells to produce abnormal proteins, known as neoantigens, which can set the immune system’s alarm bells ringing. The idea behind a cancer vaccine, then, is to introduce these neoantigens directly into the body, thereby training the immune system to see any cancer that carries them as a foreign body, ripe for elimination. One method of this is to use bespoke vaccines, which is now possible thanks to advancements in mRNA vaccine technology. Companies like Moderna Inc. (MRNA) can now develop these vaccines in as little as six weeks, and Moderna itself has one of these candidates in late-stage trials in partnership with Merck & Co. Inc. (MRK) to combat melanoma, a type of skin cancer. The other way is to use “off the shelf” vaccines that target common tumor markers. Here, Moderna also has an active candidate in partnership with Merck that many expect will be approved later this year. That makes Moderna a 10-bagger company hiding in plain sight. Though the bonanza of its Covid-19 vaccines is now over, an even better market beckons. Effective immunotherapy, after all, has long been the “holy grail” of cancer-fighting drugs. This could be the year Moderna finally reaches the finish line. | Recommended Link | | | | Investing legend Louis Navellier warned us about the stock market crash of 1987... the 2000 dot-com crash… Enron’s collapse… and the 2008 financial crisis crash. He also predicted the rise of a host of iconic stocks… including Google, Apple, Amazon, Netflix, Facebook, and Nvidia. Today, he’s stepping forward to make history yet again… with a critical market forecast he’s calling: “My biggest prediction in 47 years…” Click here to see it. |  | | Growth Stock 2: The Undervalued Tech Giant In December, Google parent Alphabet Inc. (GOOG) unveiled several new AI models, including Gemini 2.0 and Veo, a generative video model. These products are mind-blowingly good. Gemini 2.0 has edged out OpenAI’s “o1” model in several independent LLM leaderboard rankings, and users have called Veo “absolutely stunning.” 
source In other words, Google has gone from playing catch-up to OpenAI to having a superior product… virtually overnight. In addition, Alphabet’s quantum computing and chipmaking units have seen significant advances in recent months. In early December, shares of the company jumped 6% after management revealed a breakthrough in its “Willow” quantum chip. Reasearchers had found a way to string together “qubits” – the building blocks of quantum computers – so that error rates would decline as the number of qubits rise. Separately, the company’s latest Tensor Processing Units (TPUs) became available for rent last month. Together, that tells us that Alphabet’s shares could be primed for a breakout in 2025. Simply too much is going well for this firm for the stock to trade at 25 times earnings. I foresee a 30% upside over the next year. A Trader’s Paradise Some cyclical stocks take years to play out. Advertising-focused stocks like Google typically operate on a four-year cycle, since presidential election years typically mark a high point in ad spending. Meanwhile, industrial firms like Celanese typically operate on a shorter two- to three-year cycle. Supply gluts are soon followed by belt-tightening shortages. Both types of firms are ideal for buy-and-hold investors with a 12-month or longer time horizon. On the other hand, active traders will want to seek companies with cycles lasting a year or less. These companies provide windows of opportunities that can reward investors with 10%... 20%... even 50% returns in a matter of months. To help navigate this, TradeSmith has developed a tool that can help you find the best times to buy and sell a stock. And on January 8 at 10 a.m. Eastern, they will show you exactly how it works. You will even gain free access to the tool if you sign up for the webinar. So, click here to reserve your spot. Happy New Year, all! I’ll see you back here next Sunday. Regards, Tom Yeung
Markets Analyst, InvestorPlace | 
