2025 is getting closer, and investors need to start thinking about how they want their portfolios positioned headed into the new year. Fund managers often make big changes before the new year, which can ignite a "Santa Claus rally." This effect pushes stock prices up in December, so individual investors must start considering their moves now.
Two stocks that I will likely increase my position in before the new year are Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and PayPal (NASDAQ: PYPL). Both of these stocks could see some interest before the new year, as they are relatively cheap compared to many stocks in the market.
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Alphabet is Google's parent company and has a dominant grip on the search engine market. While there were some worries earlier this year that Alphabet's grip on this function could be in danger, it's clear that those fears were overblown. Alphabet has proven itself nimble enough to implement changes (like the generative AI-powered search summary) and will likely be able to copy successful features from rival search products before it sees too many defectors.
Additionally, Alphabet is seeing huge demand in its Google Cloud division. That division, which is thriving as its clients increase their computing power to develop AI models, has many unique tools available. Google Cloud's popularity and usage have soared, leading to revenue rising 35% year over year to $11.4 billion.
Overall, Alphabet's third-quarter revenue increased 15% year over year to $88.3 billion, which is not bad for the fourth-biggest company in the world. Still, it's valued at an incredibly low price, with Alphabet's stock trading for just about 22 times forward earnings. Considering the S&P 500 (SNPINDEX: ^GSPC) trades at 24.6 times forward earnings, Alphabet could see a rally next year as investors look to find some cheaper stocks with strong growth potential in the market.
For about three years, PayPal hasn't received much love from the market. Its stock price peaked at more than $300 per share in mid-2021 and pretty much declined until mid-2024. It has seen some interest recently, with the stock rising 50% since the beginning of July, but there's still plenty of room to go.
PayPal's CEO, Alex Chriss, joined the company in September 2023 and is leading a transformation. He laid out his vision to make the company more efficient and focus on what PayPal does best, rather than becoming an app that is used to do everything. This has worked out well in recent quarters, as PayPal's business is showing signs of life.
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