5 ‘Sleeper Stocks’ You Might Not Know About — but Could Pay Big in 2025

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Every investor wants to beat the market with their investments. But not many consistently do, aside from “Oracle of Omaha” Warren Buffett. 

As we head into 2025, many investors will be reevaluating their portfolios and wondering what stocks they should buy. And it could be a good time to do so.

“Sure, the stock market is expensive by historical levels, but the economy appears to be on stronger footing than it has been in several years,” said Jeremy Bowman, an analyst with The Motley Fool, a company whose Stock Advisor picks have returned an average of 830% since launching, compared with 169% returned by the S&P 500. “Unemployment is low. Inflation is normalizing, and interest rates are expected to fall, which should unleash increased borrowing and spending, helping to fuel economic growth.”

For investors who want to try to beat the market as we enter 2025, what stocks should they be taking a closer look at?

Home Depot (HD)

As one of the largest retailers in the world, it’s hard to call Home Depot a “sleeper stock.” But the home improvement retailer has struggled over the past few years alongside real estate markets. 

“Comparable sales and profits are down, and spending on home improvement is weak, but a number of factors could drive a turnaround,” Bowman said. “First, interest rates are expected to come down through the rest of 2024 and into 2025. That should help lower mortgage rates, which will encourage a rebound in the housing market and bring homebuyers back in.”

Not only that, but existing homeowners should have an easier time borrowing for renovations, which could provide a boost for this stock. “Americans have more home equity than ever before, giving them potentially more to spend on home improvement projects if borrowing rates turn favorable,” he said.

And don’t forget about the housing shortage. “Additionally, there remains a shortage of millions of homes in the country, and returning President Trump has identified the housing shortage as a top priority to fix,” Bowman said. “Home Depot is now better equipped to tap into a boom in home construction and the building materials supply industry due its acquisition earlier this year of SRS Distribution, a leading building materials distributor.”

Bowman also pointed to rebounding home sales. “Existing home sales are down about 40% from pre-pandemic levels. That will normalize however, and 2025 looks poised for that trend to start,” he said.

XPO Inc. (XPO)

Bowman also sees huge potential in XPO, the third-largest less-than-truckload (LTL) trucking company in the country. “After slimming down through the spinoffs of GXO Logistics and the RXO truck brokerage, the company is now primarily focused on the North American LTL market. It also owns a smaller European Transportation business, which it plans to sell,” he said.

So what makes it a good investment? Its recent performance and growth are positive signs. “In recent quarters, XPO has achieved strong profit growth and margin improvement. It’s also made service improvements, like better on-time rates and a sharp drop in damage claims,” Bowman said. “XPO has had a strong 2024, and that has come in spite of an ‘industrial recession’ as freight volumes are down and the PMI manufacturing index has shown a contraction in manufacturing activity for roughly two years.”

ASML Holding (ASML)

The booming artificial intelligence (AI) and semiconductor market stands to haul plenty of back-end suppliers up with it. “Manufacturer ASML is one of the most valuable companies in the world, but it’s likely unknown by most retail investors,” Bowman said. “As the largest manufacturer of lithography equipment used to manufacture semiconductors, it’s the only company that makes extreme ultraviolet lithography machines … which are used to make the most advanced chips.”

Though the sector can be volatile, there are positive signs for this stock. “These machines are very complex and expensive, and that makes the semiconductor equipment sector volatile and subject to its own cycles,” Bowman said. “The stock tumbled in its recent earnings report, as it offered weak guidance in part due to a sluggish recovery in China, but it’s positioned to win on AI demand and the broader growth in semiconductors over the longer term.”

Overall, Bowman thinks this stock should see a good recovery in 2025. “With that bad news already priced in, and tens of billions set to pour into chip manufacturing through AI growth, the CHIPS Act and other drivers, ASML looks like a good bet to recover next year,” he said.

PureCycle Technologies (PCT)

Jim Lee, CFA, founder of StratFI, likes to dig into small cap and midcap companies that often fly under the radar. In particular, he likes niche companies that rarely see any media exposure yet feature great fundamentals. And one of those is PureCycle.

“PureCycle holds the exclusive commercialization license to a patented solvent-based purification process from Procter & Gamble, turning waste polypropylene plastics into a better-than-virgin resin,” he said. “Polypropylene is found in everything from yogurt containers to car parts and carpets. PureCycle’s recycling technology was recognized by Time Magazine as one of the Top 100 Inventions of the Year in 2019.”

With the stock’s trading price as of early November, Lee explained that it’s trading far below its peak. And that’s not the only good sign for this stock. “Insiders have been aggressively accumulating shares,” he said.

And there’s further growth on the horizon. “The company is expected to expand their production lines eightfold in the next two years, generating $300 million in revenues per new production line with EBITDA margins of 50%,” Lee said. “Even after this rapid growth, PureCycle’s market penetration would only be 1.5% of the overall polypropylene market.”

Lee cautioned investors that the company is not yet profitable, however. “PureCycle stands poised for profitability within three years. Until then, it will be volatile,” he explained.

British American Tobacco (BTI)

For a more defensive and income-oriented stock pick, consider British American Tobacco, according to Vince Stanzione, an experienced stock trader and author of “The Millionaire Dropout.”

“While cigarette smoking is in decline, make no mistake tobacco is still a thriving business,” Stanzione said. “BTI’s brands include Kent, Dunhill, Lucky Strike, Pall Mall and Vuse, the world’s largest vaping brand. In 2017, they took over Reynolds and added a handful of popular brands like Newport and Camel to its lineup.”

In addition to its extensive brands, the company is generating cash and, according to Stanzione, has good things on the horizon. “The company remains a strong cash generator and currently offers a yield of over 8% a year. It has a price-to-earnings ratio under 7.0, which reflects the fact that it’s out of favor and seen as low growth,” he said. “I disagree, as there is still growth in many emerging markets and the transition to smoke-free products like Vuse will make up the majority of the earnings.”

As of early November, the stock has seen healthy growth this year and is paying a high dividend, Stanzione explained. And that’s not all. “The company is also buying back its own stock and plans to buy back a further $1.15 billion in 2025. It makes a good defensive stock if markets fall in 2025,” he said.

While there’s nothing wrong with picking some stocks for fun, be sure to consider risk tolerance and safer investments too, like index funds and other diversified exchange-traded funds. A single stock can lose 100% of its value, but the stock market as a whole will almost certainly continue rising over the long term.

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