Picking Stocks: The Art of Predicting the Future

Investing in stocks is fundamentally about forecasting future trends. Successful investors often find themselves in the right place at the right time, identifying companies that are poised to benefit from emerging trends. For instance, those who invested in Amazon in 1998, Tesla in 2012, or Nvidia in 2020 recognized the potential of online shopping, electric vehicles, and the AI revolution, respectively. Their foresight translated into substantial financial gains.

However, predicting the future is no easy task. Timing is a critical factor; a correct thesis about a sector may take years to materialize. Moreover, choosing the right company within a promising sector can be equally challenging. Investors who backed the now-defunct EV maker Fisker or the struggling chip giant Intel can attest to the pain of being on the wrong side of a trend.

Traditionally, investors have relied on cyclical stocks—buying travel or entertainment stocks during economic upswings and defensive stocks like consumer staples during downturns. Yet, the current investment landscape is increasingly influenced by broader forces such as technological transformation and geopolitical instability, making this model less reliable. For example, utility stocks, typically seen as defensive, have surged in recent years, while the tech-heavy "Magnificent Seven" stocks have dominated headlines, overshadowing traditional cyclical and defensive categories.

As the political climate shifts, particularly with Donald Trump’s potential return to the White House, the investment environment may become even more unpredictable. In light of these complexities, Fortune’s finance team has identified five key trends for 2025 and selected three companies poised to capitalize on each trend. These picks reflect ongoing technological advancements, geopolitical risks, and evolving health and wellness priorities. However, readers should view these selections as starting points for their own research rather than definitive investment advice.

Trend 1: Conflict and Geopolitics

The global landscape has become increasingly perilous, with armed conflicts on the rise, including the ongoing war in Ukraine and tensions in the Taiwan Strait. According to the Institute for Economics & Peace, there are currently 56 armed conflicts worldwide, the highest number since World War II. This environment has led to a surge in cyberattacks, creating opportunities for investors in defense and cybersecurity sectors.

Ron Epstein, a senior analyst at Bank of America, anticipates that U.S. defense spending will reach around $1 trillion next year. He recommends investing in major defense contractors, highlighting RTX (Raytheon Technologies) for its robust missile franchise and complementary commercial aircraft business.

For those hesitant to invest in defense, the cybersecurity sector presents a viable alternative. Companies like Fortinet (FTNT) are well-positioned to thrive amid increasing cyber threats. Fortinet has consistently outperformed its peers and boasts a diverse range of services across various sectors, including finance and healthcare.

Investors wary of individual stocks may consider ETFs that track volatility or even traditional gold investments, such as SPDR Gold Shares (GLD). Goldman Sachs predicts gold prices could exceed $3,000 an ounce by 2025, driven by ongoing global unrest.

Trend 2: A Return to Luxury Spending

Despite a challenging year for the luxury sector, marked by declining share prices for brands like Burberry and LVMH, analysts believe a rebound is on the horizon. Historical data indicates that luxury down cycles typically last only one to three years, suggesting that high-end consumers will soon return to their spending habits.

Jelena Sokolova, a senior equity analyst at Morningstar, points to Prada (PRDSY) as a strong candidate for recovery, particularly due to the success of its Miu Miu brand, which has seen impressive sales growth. Another standout is Hermès (HESAY), which has remained largely insulated from the downturn, reporting consistent double-digit sales growth and maintaining high demand for its exclusive products.

Trend 3: A Huge Appetite for Energy

Global energy consumption continues to rise, driven by factors such as electric vehicles and the proliferation of connected devices. This trend presents numerous investment opportunities across various energy sectors.

Constellation Energy (CEG) is making headlines for its plans to restart the Three Mile Island nuclear plant, betting on nuclear energy’s potential for revenue growth. The company has already secured a long-term deal with Microsoft to supply nuclear power to its data centers.

In the oil and gas sector, TechnipFMC (FTI) is poised for growth as it builds infrastructure to support BP’s oil extraction efforts. With a substantial backlog of orders and a commitment to returning cash to shareholders, TechnipFMC represents a compelling investment opportunity.

Additionally, Spanish energy giant Iberdrola (IBDRY) is doubling down on renewable investments in the U.S., particularly in offshore wind projects, further solidifying its position in the energy market.

Trend 4: AI, AI, and More AI

Since the launch of ChatGPT, the demand for artificial intelligence has skyrocketed, driving a broader stock market boom. Companies directly involved in AI have seen their market caps soar, while even tangentially related sectors have benefited from the hype.

Nvidia (NVDA) stands out as a key player in the AI boom, with its GPU chips in high demand across various industries. Analysts predict significant growth for Nvidia, with sales expected to exceed $50 billion in the coming years.

Microsoft (MSFT) is another strong contender, having invested heavily in AI and positioning itself as a leader in the space. Despite recent stock fluctuations, analysts see potential for growth as the company continues to capitalize on its AI investments.

Salesforce (CRM) is also worth watching, as it aims to leverage AI to enhance its application software offerings. While the company has faced challenges, analysts believe it could see renewed interest as it develops AI-driven solutions.

Trend 5: Health and Wellness

The health and wellness sector is experiencing a surge in interest, with more people engaging in fitness activities than ever before. According to the Sports & Fitness Industry Association, 242 million Americans participated in sports or fitness activities in 2023.

For investors, the sporting goods sector presents a solid opportunity, with Nike (NKE) emerging as a standout despite recent challenges. Analysts believe Nike is undervalued and poised for a comeback, benefiting from the growing popularity of sports globally.

In the healthcare space, Hologic (HOLX) is making strides with its 3D mammography technology and a strong market share in mammography imaging. The company has demonstrated consistent growth and is well-positioned to capitalize on the increasing focus on women’s health.

Additionally, the prenatal diagnosis market offers potential for growth, with companies like Sera Prognostics (SERA) developing innovative tests to address preterm birth risks. As awareness of these health issues grows, Sera’s offerings could gain traction among healthcare providers.

Looking Back at Fortune’s Stock Picks for 2024

Reflecting on the past year, Fortune’s finance team selected 13 "inflation-proof" stocks, achieving a total return of 51%, outperforming the S&P 500’s 34% return. Notable successes included Nvidia and Palantir, both of which delivered exceptional returns. While some picks lagged behind the benchmark, none resulted in negative returns, highlighting the potential for strategic stock selection in a volatile market.

This analysis serves as a reminder of the importance of thorough research and strategic thinking in navigating the ever-evolving landscape of stock investing.