Are you looking at stocks that could beat the market next year? These companies are coiled springs about to explode at any moment.
With multiple Wall Street indexes trading near all-time highs, opportunities to find trades are becoming increasingly difficult. In some ways, this is a fun problem, but it’s also a challenge for anyone thinking about where to put their new money. After all, the stock market is, as the name suggests, a market for stocks. Just because some of these stocks are more expensive doesn’t necessarily mean the trade doesn’t still exist.
After a thorough search, SentinelOne (S 5.09%), Netflix (NFLX 1.82%), and Sea Limited (SE 0.89%) emerge as three hot stocks to watch by Fool.com contributors with room to rise above the market next year. I did.
SentinelOne has outperformed in 2024 and may continue to do so
Justin Pope (SentinelOne): SentinelOne combines two of Wall Street’s most popular themes: cybersecurity and artificial intelligence (AI). The company’s autonomous security platform uses AI to provide cutting-edge protection against cyber threats and has earned high marks in third-party testing across the industry. Given the high cost of breaches, businesses are seeking high-end solutions like SentinelOne, resulting in the highest revenue growth in the market.
SentinelOne not only saw its revenue increase 33% year-over-year in the second quarter of its fiscal year ended July 31, but it also improved its profitability, giving investors bullishness on the stock. It gives the company some attitude and helped push the stock price up nearly $40. % over the past year. However, there could be even greater returns along the way.
SentinelOne recently announced an agreement with Lenovo, the world’s largest PC manufacturer, to include the company’s security software in new PC shipments. Since entering into a similar partnership with Dell Technologies last year, CrowdStrike has generated more than $50 million in revenue to date. Achieving similar results would be a significant shift in direction for SentinelOne, which analysts estimate will generate revenue of $815 million this year and about $1 billion next year. These estimates could rise further if SentinelOne talks about its partnership with Lenovo in its upcoming earnings release.
Despite all the good things happening with Sentinel One and its impressive investment return, the stock is still likely to outperform the broader market. SentinelOne’s valuation has fallen significantly over the past few years, and it still trades at a lower enterprise value-to-sales ratio than its tech peers such as CrowdStrike, Zscaler, and Palo Alto Networks. No, it’s not too late to buy SentinelOne, despite this year’s meteoric rise.
The SentinelOne party started in 2024, and we expect the momentum to continue next year.
Netflix may already be winning the streaming war
Jake Larch (Netflix): Up more than 45% year-to-date, there’s no question that Netflix is a hot stock right now. But I think 2025 could be an even better year for the streaming giant. Here’s why:
The streaming wars aren’t over yet, but Netflix clearly has the upper hand.
For example, according to data compiled by Nielsen in June, streaming video now accounts for about 40% of total TV usage, with cable (27%) and broadcast (20%) far behind.
And when you dig into the streaming component, it becomes clear who the big winners are. Alphabet’s YouTube leads the streaming usage with 9.9%, followed by Netflix in second place with 8.4%.
The next closest streamer is Amazon’s Prime Video (3.1%), followed by Disney’s Hulu (3%) and Disney+ (2%), and Tubi (2%). None of the other big streamers, including Paramount+, Comcast’s Peacock and Warner Bros. Discovery’s Max, are able to break the 2% mark.
In other words, Netflix has remained competitive in the streaming market. Not only that, but the overall streaming market continues to take share from traditional viewing sources like cable and broadcast TV.
As a result, Netflix’s fundamentals continue to shine. In its most recent quarter (three months ending June 30, 2024), Netflix reported year-over-year revenue growth of 17% and operating margin of 27%. Both numbers are significantly higher than the same period last year.
NFLX Operating Revenue (Quarterly YoY Growth) Data by YCharts
In summary, Netflix has not only overcome serious challenges to its business model, but is well-positioned to emerge from the streaming wars stronger than ever and build on its past successes. 2025 could be a great year for Netflix as the company ramps up its advertising business. Investors would be wise to consider Netflix now, ahead of what could be a banner year.
This pandemic stock recovery is on track
Will Healy (Sea Limited): After a brutal sell-off during the 2022 bear market, it may finally be time to focus on Sea Limited. The Singapore-based conglomerate thrived during the pandemic as its retail, gaming and fintech sectors served a locked-down customer base.
However, once the lockdown was lifted and the economy reopened, the situation turned negative. Free Fire, which was previously the number one smartphone game, has lost some of its popularity since 2021 and was banned in India due to national security concerns. Additionally, the retail arm, Shopee, instead of investing in logistics in the Southeast Asian market where the leading online retailer is, entered the European and Latin American markets where it did not have a competitive advantage.
All of these factors caused the stock price to decline 91% from fall 2021 to early 2024.
Fortunately for Sea Limited shareholders, Shopee has exited most of its markets outside of Asia and invested heavily in logistics infrastructure in its home region. Additionally, Free Fire is experiencing a resurgence in popularity and Garena continues to work with the Indian government to bring Free Fire back to India.
Additionally, fintech sector Sea Money continues to thrive, contributing to Sea Limited’s revenue reaching more than $7.5 billion in the first half of 2024, up 23% year-on-year.
However, net income decreased significantly due to a 73% increase in sales and marketing expenses. Although most of the increased spending was related to investments in e-commerce, we also spent significantly on our C-Money business. Still, these investments should lead to increased revenues and profits in the long run.
Investors seem to like the company’s new strategy, with the stock up more than 115% over last year. And while the decline in net income has skewed the P/E ratio, the company’s price-to-sales (P/S) ratio of 3.8x is not significantly higher than the 3.3x sales ratio of Amazon, a much larger e-commerce conglomerate. . At such a valuation, Sea Limited should be able to reap significant gains in 2025, considering the share price is still 75% below its 2021 high.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Jake Lerch has held positions at Alphabet, Amazon, CrowdStrike, and Walt Disney. Justin Pope has a position at SentinelOne. Will Healy holds positions at CrowdStrike, Sea Limited, and Zscaler. The Motley Fool has positions in and recommends Alphabet, Amazon, CrowdStrike, Netflix, Palo Alto Networks, Sea Limited, Walt Disney, Warner Bros. Discovery, and Zscaler. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.
