Steven Cress reviews his top 10 stocks for 2025

0:09Hey, everyone. Daniel Snyder here from Seeking Alpha. We are excited to dive into the top 10 stocks. 2025 recap today with all of you and how Steve came about these picks. And we're kind of teeing this up because here in January, we'll do it all again for next year. But first things first, let's go ahead and get your investing disclaimer out of the way here. So we are not advising you personally concerning the nature, potential value, or suitability of any particular security. You alone are solely responsible for determining whether any investment security, strategy, or any product or service is appropriate or suitable for you based on your investment objectives and personal and financial situation.

0:43This presentation is for information purposes only. Content is presented as of the date published or indicated and may be superseded by future events. It represents my opinions and Stephen Kress's opinions, which may not reflect the views of Seeking Alpha as a whole. Past performance is no guarantee of future results, and Seeking Alpha is not a licensed security dealer, broker, US investment advisor, or investment bank. And now with that out of the way, Steve, it is great to have you joining us here today. And every year I get to see these 10 picks from the beginning of the year to the end of the year.

1:13I got to give you your applause. Well done this year. This has been tremendous. I can't wait to go through all the names. And I know everybody here joining us as well as looking forward to get into it. But sentiment's kind of been all over the place this year in 2025. And it kind of is reflected here within the different sectors and across the metals and other commodities and currency indexes, if you will, as well. So let's break this down. So obviously, you've seen certain sectors this year, such as technology and communication services saying, hey, it's risk on cryptocurrency, right? Bitcoin for the longest time saying risk on risk on in the market.

1:45But then you also had the traditional safe havens of gold and silver and the like also taking off with massive returns this year, which no one kind of had on their bingo card at the beginning of January, if you remember. So why is that? Well, there's a lot of this rotation that we've been seeing going on within 2025 of people kind of pulling away from the US dollar. You know, I just pulled up DXY, the US dollar index here on Seeking Alpha, and it shows me year to date, showing that the index is down about 9.5%. So that move away from the US dollar strength, also the move away from treasuries, the China's international reserves, and you're kind of seeing them just load up on the gold bullion.

2:24And they're kind of doing that as potentially their safe haven trade. But the rest of the world is still fueled by this AI and risk on sentiment. And that's where you're kind of getting this clash of, well, which one is it? And we don't really know. So it's an interesting time that 2025 has panned out like this. And it'll be interesting to see in 2026 that the metals continue the run that they've had. You can see on the U.S. equity sectors, year-to-date technology is up 27%. But just along the lines of what you were mentioning, if you look at the one-month return and you go to the bottom, you can see consumer staples is up 2.3 % versus like a year-to-date where it's down half a percent.

3:03You can see that healthcare is up 3.3%. That's typically a safe haven sector as well. So as we're coming towards the tail end of 2025, the market is still concerned. And that's sort of setting the groundwork for going into 2026. Let's take a look at the year a little bit more closely. And then we're going to get into a review of the stocks. This actually is much more than a year. You could see the rate of tariffs going all the way back to 1920 when we had Smoot-Hawley, when we had reciprocal tariff acts. And then you could see in 2025, the Trump trade war with a complete surge there, straight up going through the roof.

3:47You know, saga and turbulence obviously impacting the market. Early in the year, this Liberation Day that we had drove a sharp spike in volatility and a huge sell-off in April with the S &P 500 selling off. we've had escalating u.s trade disputes particularly as i said between the u.s and china which dragged the ev and battery makers and semiconductor manufacturers all into the picture so tremendous volatility with many of those sectors uh there was a truce that did occur between the u.s and china in mid-may and at that point that gave the market a good foundation to rally to those highs that we saw in October.

4:29So May through October was a really good period. When we got to that part initially in the year where the trade wars were at a peak, the S &P 500 actually pulled back 15 % at its max. And the reason why I like that number, and we did a little bit of a back test to look at the last five pullbacks that the market had. And there was a little bit of a panic that just started to occur at that point. And when you see panic, you see markets that are driven by sentiment and you see a flight to safe haven sectors, to cash, to gold, which we actually, the gold aspect, we continue to see throughout the year, but it does present opportunities.

5:12And nobody's completely sure where the year ahead is going to go. As I had shown you on the US sector chart over the last four weeks, we've actually seen consumer staples and healthcare being quite strong, again, defensive sectors. But what I will highlight is if we do see the market pullback, what I love about this, when we assess the last five pullbacks to 15%, we found that if you bought the S &P 500 at that 15 % pullback, and the market over these last five pullbacks could have been more than 15%, could have been 20, 25, 30, 35%. But if you use the 15 % pullback as a decision-making point to buy the market, If you bought the S &P 500 and you held it for two years, you were up almost 50%.

6:00So again, that's on average for the last five pullbacks of 15%. If you bought the S &P 500 and you held it two years, you were up almost 50%. Conversely, if you bought the top 10 quant strong buy stocks at that 15 % pullback, you would be up 117%. Peter Lynch, one of the most famous investors of all time, said the key to making money in stocks is not to get scared out of them. So super important. And that's exactly what happens. When we go into these corrective phases, people sell stocks that have good fundamentals. And that's what we do. We recommend stocks with good fundamentals. and often during these pullbacks, so the market's down 15%, you could see our stocks pull back 20, 25, 30%.

6:46But hence, when sentiment fades away and people return to fundamentals, that's why there's such a huge upside in the two years following that. And Warren Buffett saying, be fearful when others get greedy and greedy when others are fearful. And my own saying is, fear fades, the market will always return to fundamentals. So if we do hit a period where we get into 2026 and we're going to be recommending the top 10 stocks for 2026 on January 6th, if the market fades at some point, just say, hey, this could be a good opportunity to purchase more of these stocks that have excellent fundamentals. So that's really the point that I'm trying to make here.

7:27And we are seeing some murky economic data and we have seen the Fed take rates down three times in the second half of the year. indicating that there are some issues with the labor market. The conflicting economic data that we see in May, we saw Moody's downgrade U.S. credit. Everybody was pretty familiar with that. That was probably one of the lowest points in the market. That was actually a really good opportunity to sort of buy into the market. Major brokerage firms have cut their recession odds following the tariff troops. That's been good. We have seen worsening labor data, and that solidified the case for interest rate cuts in September, October, and most likely even in December as well.

8:08Inflation has been a little bit on the stickier side. So that's what has caused concern that the Fed may not lower rates, but they did feel uncertain enough about the labor situation that they wanted to take rates down. The quits rates continue to trend down and that is for employment and that comes from Indeed. That dual mandate thing, right, Steve? Looking at the inflation side, but they're also looking the employment side. And obviously yesterday, we just had the other 25 basis point cut. And they're talking about there's a little weird thing going on in the employment market right now, on top of inflation also still being sticky.

8:42So it's kind of like, where do they go from here? They just want to wait and see. Absolutely. That's spot on, Dale. Spot on. So dot plot comes out every time, no matter how much the board of governors may not like it, they have to put their dots on this plot. So what are we looking at here? Well, we're looking at updated dot plots over time from the meetings. And you're seeing more recently that as these are projected out into the future, they're calculating in less and less cuts, which can obviously be a little weird in an economy that needs to stimulate certain sectors like housing or consumer discretionary, for example.

9:12So that's why people are looking at this right now and refinancing debt and obviously watching the debt levels of the United States government and the economy going on here. So it looks like interest rates are projected to stay kind of around these levels right here, unless there's a black swan event, of course. But companies, management, they're all going to have to factor in that this might be the new reality and they're going to have to take their companies in whatever direction they need to do to hopefully continue to grow EPS and revenue for people. Well said, thank you. AI premium, how much of it is priced into the market?

9:43No question about it. Mega Cap stocks and the Magnificent Seven are almost for the most part perceived as AI players and their valuations are quite extended. So market valuations are centered on the MAC-7, which trades at 31 times forward earnings versus just 22 times earnings for the S &P 493. Now, of course, people refer to the S &P 500, but if you take out the seven stocks, it would be 493 stocks. So that is a huge difference, a multiple of 31 times versus a multiple of 22 times. And the S &P 500 is very top heavy with 35 % of the total market cap attributable to the MAG7 stocks. And a lot of that CapEx growth is coming from the MAG7 stocks.

10:37And that does work its way out to some of the suppliers and the smaller companies. hyperscalers are committing enormous capex it is absolutely going through the roof in terms of their capex spend now versus what it was a decade ago and a lot of that again just focused on making ai scalable for them and trying to develop new products that will give them incredible market share what are we seeing in terms of where they are now well nvidia's strong q3 led to tech sell off. I think a lot of people thought that was already baked in. So how much good news, as we show here, was already through the price.

11:17And US equities slipped today, actually, as Oracle had mixed earnings. And again, that stoked viewers about tech valuation. But again, I'll bring us back to that first bullet point. If you looked at the S &P 493, the multiple for the market is about 22 times uh i feel given the anticipated growth for companies coming into 2026 that might be a little bit of the rich side but it's not extremely rich obviously not nearly as rich as the s &p 500 when you bake in the max 7 take your victory lap all right i i appreciate it i'm not big on victory laps but this is our our quant system for 2025 back in january when i picked the top 10 stops for this year.

12:01It has resulted in very good performance from the date that we did it, which I think was January 9th. All right. So this is from January 9th right through December 10th. Excellent returns up 46.6, 45.68 % versus the S &P up 17.6%. So we have some good returns. The reason really why I want to show this is if you look at the beginning of the year, you could see the market was very focused on companies with good fundamentals and our performance basically shot the moon. But then when we got to that time frame around February, tariffs really just took over the conversation and the concerns of the market.

12:38There was a massive sell-off in these top 10 stocks. So by the time you got to May, the S &P 500 was really outperforming the stocks that we recommended. But I will say this time and again, when we hit a market that is driven by fear and sentiment, companies with good fundamentals will sell off. And this is a perfect textbook case example of what happened. The fundamentals for these companies really did not change. It was just the market perception and fear and people going into gold and cash and consumer staples. And as soon as that trace of the truce really was announced with China, the market started to feel a lot more comfortable.

13:19And it was at that point where the market again shifted from sentiment back to fundamentals. And you could see how the stocks with great fundamentals absolutely took off and far far surpassed the S &P 500 and really we've seen this repeat itself in 2022, 2023, 2024. We've had great performance each year but each year we've had some concerns in the market where you could say it was driven more by sentiment than it was fundamentals and then it rotated back to fundamentals and that's why we've had some exceptional years. If for the top 10 stocks going back to 2024 if you bought those stocks and you actually held on to them and you didn't sell them, you would be up 356 % versus even the MAG7, which is up only 103 % for the same period.

14:05And the S &P 500 up 47.79%. So really incredible performance. And I often tell people, even if a stock is no longer a strong buy or buy, if it's a hold, a hold means hold, it doesn't mean sell. So get rid of the stocks where you see the sell. If it's a hold, and you still like that stock, you still feel there's potential for growth and maybe the market valuation is just not completely aligned, but there's still strong growth, you want to hold on to those stocks. And taking a look at our top 10 for 2023, those are up 187 % if you held them to this date versus the S &P 500 up 85%. Now we're going to get into our top stocks from 2025, the ones I recommended in January, and I want to provide a little bit of an update on those.

14:54You can see the names right here. We have Celestica. And what you can see here are actually the current ratings as well, which is really important. As I mentioned, these stocks are 45 % since January 9th. Six out of the 10 names have generated positive returns. You're rarely ever going to get all 10, not even close to it. You're always going to have a couple that have negative returns. But the key is to have the ones that are the winners outproduce the losers. and typically from the winners we're aiming to have maybe three of those stocks that have moved up significantly and that's happened every year for us and 2025 was no exception to the rule we have some stocks that really did great uh very much ai related with celestica and credo uh both of which are still strong buys uh we have urban outfitters as a strong buy still up by is a buy I remember that stock did really well as soon as we recommended it.

15:49And then I completely got crushed when the market rotated away from fundamentals and two sentiment. And that has started to come back recently. The others are a hold. And the only one that has dropped down to a sell is Stride. The growth aspect of Stride is still actually fairly attractive, but the EPS revisions grade, which are analysts who are taking estimates down, and also the momentum grade, those two grades have led the stock to be a sell. Well, Steve, one second. I want to make sure we clarify too that when you put out these top 10 stocks at the beginning of the year, this is not a portfolio that rotates names.

16:28You put your name on the line, you put the quant system on the line, you pick 10 stocks and they stay in the portfolio the entire year. This isn't a rotating thing. So it speaks volume that you pick stocks that actually have great fundamentals. Yeah, and that's what it's about. I'm just giving you my 10 favorite stocks at the beginning of the year. This list is really meant for long-term investors. I mean, obviously, they can sell out of them as they choose. We don't know the risk profile for each individual, so you have to invest the way that you feel comfortable. Some of these stocks are smaller.

17:00Some of these are larger. But we basically say this is the list for the year, and at the end of the year, let's see what the performance is. And we have found year in and year out, we are crushing the S &P 500. by focusing on names that are quant strong buys and again what is a quant strong buy it's a stock that is collectively strong on value growth profitability momentum and eps revisions and that's what we look for uh so here are the strong buys in the portfolio still we have credo technology ticker symbol crdo uh market cap on this company is 28 billion so this is definitely a large cap is the IT sector, where it was ranked 6th out of 536 stocks.

17:44And just as a refresher, we bought this in the beginning of the year. In the semiconductor industry, it ranks actually 2 out of 67. The return since January 9th, the stock is up 116%. Their focus is high-speed connectivity solutions for their providers. and they had delivered a record Q2 with revenue up 272 % due to new AI connectivity pillars. So the stock definitely benefiting on that. Despite the stock being up significantly year and date, the valuation grade is still roughly the same. So it's a C - now. Six months ago, it was a C. It did get super expensive at one point, so that valuation grade had dropped all the way to an F, but it's much more attractively valued now.

18:35And you can actually see the growth grade as an A plus. So the growth is just stellar for this company. Profitability has actually improved dramatically. So the profitability grade is a B now, whereas six months ago, it was a D. So profits are definitely improving for this company. And in terms of the momentum, it continues to be strong and analyst revisions continue to be strong. And why is it strong. They had 70. The analysts are forecasting for their long-term growth rate that earnings will grow at 78 % over the next three to five years. And that is a huge premium compared to the sector. They also have a very high return on equity at 23%.

19:17And on a peg basis, it's at a 55 % discount to the sector coming in with a peg of 0.07. Analysts really like the company. In the

19:3010 upward revisions and zero downward revisions by analysts. So that means analysts keep revising their numbers up and they do not take it down for this stock. Number two for our performers was Celestica. This company's got a market cap of about$40 billion. It ranks number five out of 536 in the IT sector. Their industry is electronic manufacturing, where they rank one out of 18. so they've been able to maintain their superiority in the ranking from the very beginning of the year to now, almost the end of the year. This stock was up 240 % since January 9th. They manufacture complex hardware platforms for hyperscalers.

20:11Revy grew at about 28 % year-over-year, with their earnings per share climbing 52 % year-over-year in the third quarter. Their forward EPS growth rate is 51%. It's huge. And they hold about$552 million in cash from operations. This company as well on a peg basis is at a huge discount in the sector of 45%. And in the last 90 days, 14 analysts have revised their estimates up and zero have revised it down. If you look at the table, you can see the valuation grade now is a D+. So it certainly is a little bit more expensive than what it was six months ago. But growth is stronger. You can see growth coming in at A - versus B - six months ago.

20:56Profitability is stronger with a B - grade versus C. And both momentum and revisions looking good pretty much in line. So stellar performance out of Celestica, even though being up 240%, the valuation is still attractive at this point. Hop-buy, that stock was just stellar in January. If you look at the chart here from the quant rating, you can see we recommended it, and the stock completely surged. up until February. And then unfortunately, when there were tariff concerns, recession concerns, this stock got slammed to the point where momentum and Adam's revisions at one point led to the stock becoming its sell.

21:36But I'm pleased to say that the company has gotten through that period, and it is actually back in the buy category. It has a market cap of$927 million. in the financial sector, it ranks 85 out of 681. And within the consumer finance industry, it ranks nine out of 38. They're a specialty finance platform that works with banks to provide credit products to the underserved U.S. consumer. So a little bit on the riskier side. Hence, when there were recession fears back in February, this stock got completely slammed. But the fundamentals really stayed intact. This company has an 84 % forward EBIT growth rate, That is huge versus the sector.

22:18They have a 22 % year-over-year operating cash flow growth rate. They actually hold about$378 million in cash from operations. And the PE at seven times, it's at a 41 % discount to the sector. So OpBuy continuing to look strong with a buy recommendation. And fair to say, it's really worked through some of the worst parts of those recession fears. And it's starting to come back now. So taking a look at consumer discretionary company, Urban Outfitters, ticker symbol URBN, 7 billion market cap, quant strong buy within the consumer discretionary space at rank 7. I'm sorry, ranks 20 out of 494 companies.

23:02I have a little bit of a typo. This isn't consumer finance. This is a retailer where it ranks 4 out of 34. What we'll do is actually take us to the platform. so we're going to go to the pro platform we're going to put in urbn so we can take a look at it and stock is up two percent today pleased to say if we look at it year to date we could see that stock has had uh two nice rallies one in may when uh the market started feeling comfortable this actually was not a really great performer early on where some of our stocks were good performers right out of the gate uh this one kind of actually drifted down but as soon as we got into sort of that April, May timeframe.

23:43It found his legs, had a really nice rally. And now we're having sort of the second rally of the year at this point. I'm going to scroll down and you'll see on the right-hand side, I guess this is plastered all over Seeking Health. And today we are going to be doing our top stocks for 2026 webinar on January 6th. So please do save that date. I'm going to scroll down a little bit. And what I want to show you are some of the factor grades for Urban Outfitters. so despite the stock being up so uh significantly this year you could see the valuation is in line you could see the growth is in line with the sector profitability better than the sector and momentum and annals revisions better than the sector uh when we scroll down a little bit more as i mentioned it's a consumer discretionary company uh not finance this is a parallel retail and within parallel retail it ranks four out of 34 i was highlighting there before but let's actually even take a look at growth.

24:40You see the overall grade is C. So we're going to click on it and you can actually see the conventional metrics are pretty strong. So we're looking, when we come up with this overall grade, we look at all the underlying metrics and these metrics are not equally weighted. Some have a higher weight. One of the ones that has a higher weight is the three to five year CAGR forward looking. That tends to be a highly predictive factor. And here it's sort of in line with the sector. But many of the conventional metrics of revenue growth, EBITDA growth, earnings per share growth, very, very strong for urban outfitters.

25:17We can see even the Ford EPS on a GAAP basis, it's got a 23 % growth rate versus a sector at just 6.74. So I really continue to like this stock. So I would definitely encourage people to look at that strong buy. Even at this point, the name has definitely been panning out. Yeah, it seems like management's performing quite well over there yeah yeah so you know you can't let a couple months especially earlier in the year the stock really didn't do anything people were nervous was this one going to be a dud and here it is coming into the talent of the year being incredibly strong now i'm going to go over the holds and as i said hold does not mean sell hold means hold and you can see this is a perfect example argon where the stock was a hold a little bit after april and it continued to trade really really well why was it old because the valuation grade is an f so it does mean the stock is expensive however um valuation is just one aspect to look at if you look at the company's growth relative to the sector it's got an a grade profitability has an a grade momentum and revisions a plus grades so there are a lot of investment characteristics that make this stock look attractive, even as a whole.

26:31This is in the industrial sector, and it ranks 107 out of 617. And within construction and engineering, it ranks 15 out of 37. This stock, since January 9th, is up 111%. So, you know, certainly I have not been scared out of this stock. It continues to perform well. This company focuses on engineering and construction for large-scale power and industrial projects. And definitely a benefactor, huge, huge increase that we see for energy that is largely being driven by the data centers and powering up these chips. So Argon, definitely a benefactor of that. Ford revenue growth is at 28%. Ford EPS growth is at 59%.

27:17That's a 628 % premium to the sector. This company, Argon, which many people don't even know, it has$22 in cash per share. That is huge for a company to have that much cash per share. And in the last three months, the stock has done really well, being up 43%. But again, the growth is phenomenal for this company. The profitability is phenomenal for this company as well. Taking us to our next hold, this stock is, I don't want to say a dog because the metrics still look really good in this company. has moved to a hold from a strong buy. This is PayPal Holdings, ticker symbol PYPL. Big, big company with a market cap at$57 billion.