Two Areas of Opportunity for 2025

With the S&P 500 trading at a new all-time high, and the NASDAQ index not far behind, investors’ portfolios that are enjoying the ride are squarely positioned in the leading stocks within the technology, travel, financial, communications and industrial sectors. For the most part of the indexes’ gains, market leadership has been narrow in scope, until lately, where there is growing evidence that market breadth is improving as lagging sectors begin to participate.

Those seeking new places to allocate capital in areas of the market that are out of favor need look no further than health care and consumers staples. But, there are a couple of themes that should emerge in the year ahead that could bring about a major change in investor sentiment that I think are worth bringing to everyone’s attention. There has to be a big catalyst to hoist a lagging sector out of its funk for a transformation change to commence that becomes a secular trend, and I would suggest a couple are under way.

One of the areas that does not get nearly enough mention as to the future impact of artificial intelligence (AI) will have is that of medical research, especially within the biotechnology space. As a sector that is generally out of favor with the investment community, many of the leading biotech and biopharmaceutical stocks and exchange-traded funds (ETFs) have sorely lagged in performance for the past two years. But I believe that is about to change.

For 2025, it is my view there will be a number of new discoveries accelerated by the augment of AI in the R&D labs like no other time in history. What used to take years and $100 million dollars minimum to develop novel therapies and newly discovered compounds could take just a few months. This would fast forward Phase one, Phase two and Phase three clinical trials to bring advanced drugs to FDA approval.

Imagine the seemingly unreachable cures for Alzheimer’s and Parkinson’s disease finally seeing robust results that stem the effects of each disease with the potential of possibly reversing these life destroying conditions. And rapid advancements in cancer treatments will be forthcoming, which have been years in the making.

Biotech stocks carry a great deal of risk due to the nature of the business of successful versus failed trials. To this point, I follow the famous biotech/biopharma specific Baker Bros. Advisors hedge fund, run by Julian and Charles Baker, and look at their top holdings that are also top holdings within the most prominent biotech ETFs. The Baker Brothers’ assets under management topped out in 2020 just north of $26 billion and are currently down to $9.6 billion. Talk about falling out of favor.

The same can be said for the most widely traded life sciences ETFs. Following huge outflows of assets in recent years, the first signs of positive fund flows have emerged in the past couple of months, due to what I believe is the promise of what AI will bring to the drug development industry and the potential of delivering phenomenal change from the time it takes to bring a new drug from the Petri dish to the marketplace.

Investors seeking yield and income can utilize some health care closed-end funds that have highly attractive yields. The following funds have at least $1 billion in assets:

BlackRock Health Sciences Term Trust (BMEZ) — Distribution Rate 13.05%

abrdn Healthcare Investors (HQH) — Distribution Rate 13.96%

abrdn Healthcare Opportunities Fund (THQ) — Distribution Rate 10.58%

Turning to another out-of-favor market sub-sector, the packaged food and beverage industry, there is a new heart healthy sheriff in town. With the likely confirmation of Robert F. Kennedy Jr. to be the new Secretary of Health and Human Services this week, it is my opinion that his placement in this powerful position will be pivotal to how the food industry is managed going forward. According to a report by the Access to Nutrition Foundation, around 70% of the products sold by the 30 biggest food and beverage companies in the world are unhealthy. Nine of these companies are based in the United States.

Greg Garrett, ATNi executive director, told Newsweek that there had been marginal improvements — with 34 percent of sales coming from healthy foods in 2024, rather than 27 percent, as was the case in 2021. “But that’s nowhere near even half,” he said. “If we’re going to get to 50 percent by 2030, things have to move much faster. It’s still a bleak picture. And, on top of that, not one of these companies is willing to stop marketing those unhealthy products to children.”

The refined foods and packaged foods industry that promotes sugar, salt, artificial flavors, artificial colors, additives and preservatives has dominated the regulatory environment at the Food and Drug Administration for decades. Roughly 35% of Americans are obese, the highest in our nation’s history, leading to all manner of hypertension, cardiac disease and a host of related illnesses and debilitating life-threating conditions.

This all will start to change in 2025, as RFK and his upper management team usher in new standards and mandates on the big food conglomerates to promote much healthier products, holding them accountable under new laws and sweeping regulations that will trigger a sea change of how foods and beverages are brought to the marketplace. This wave of change is so overdue, but it takes someone like RFK and others to heighten consumer awareness and take a wrecking ball to the powerful food and beverage special interest groups and lobbies that have had a grip on America’s food industry.

Most of the big consumer staples stocks are trading at or near multi-year lows, as the S&P 500 trades at new all-time highs. There has to be enormous pressure on the boards and c-suites from the largest institutional shareholders of these companies to forge a strategy to greatly improve shareholder value. That will only come with the launch of new healthy products that actually are healthy, and not just claim to be on the front of the package. The biggest companies with multiple bad-for-you brands will have to make wholesale changes or continue to see the value of their stocks crumble.

To this end, I believe that they will do what every public company has to do — pay attention to the bottom line and the price of the stock. Of these major food and beverage companies that stand to make the greatest changes, the worst offenders have the most to gain from sweeping changes. And, at current price levels, several of these stocks pay dividend yields between 3.5-5.5%.

P.S.: Bryan Perry will be holding a teleconference for subscribers on Jan. 29 at 2PM EST titled “What Type of Stocks Will Soar in 2025?” This event is free, but you must click here to register