These are my top picks from the S&P 500 sectors I expect to outperform in 2025.
** I compiled this list prior to the start of the new year. While the performance year to date is a mixed bag, I still feel strongly about the fundamental strengths of each of these names. **
We will be updating their performance profiles and addressing any significant changes to our outlook based on recent reporting and relative performance.
TECHNOLOGY
Intel (INTC)
This chip maker was down 60% in 2024, due to a series of product delays, cost overruns, net losses, and other disappointments that had the competition speeding past it by leaps and bounds. I see a turnaround in the offing in 2025. The first catalyst to a turnaround should be the announcement of a new CEO with a more technical background that is better able to execute than Genslinger. That should be followed by cost reductions and a new line of AI-focused products resulting in a return to profitability. Expectations are extremely low. Despite companies like AMD, Nvidia, and TSMC gaining significant advantages over Intel, it remains the market share leader in CPUs for PCs and servers. I like this combination of extremely cheap valuation with low expectations against the backdrop of several catalysts this year for improvement. I think shares can trade as high as $30 in 2025, which implies 50% upside.
ENERGY
Schlumberger (SLB)
The energy sector was flat in 2024, so it is due for recovery. If that recovery comes in 2025, the world’s leading servicer operating in more than 100 countries is a sure bet for positive returns. It’s hard to believe this was one of the market’s top five market caps decades ago, but today barely makes the top 100 list. With a 3% dividend yield and a multiple just ten times earnings, this is hardly a gamble. The demand for all forms of energy is expected to grow more rapidly, due to the AI revolution, and oil must factor into that equation. That means the industry’s technology leader is bound to make a comeback. It is important to note that earnings do not have to rise much from current expectations, as I expect a return of 50% or more in this name to come from multiple expansion. When the sector comes back into favor, this name has traded at 20-times earnings historically. That is double today’s multiple.
