My One Big Sector Bet for 2025

Editor’s Note: I spent last weekend visiting my kids for Thanksgiving. For the first time in weeks, I did not spend any time thinking about the stock market.

Instead, we binge watched The Great British Baking Show while my son and daughter took turns explaining to me what was going on. For my money, I’ll take a simple pumpkin pie over whatever they were making.

That was fun, but now it’s time to get back to work. And with this year soon coming to an end, I have my next big sector trade for 2025 ready to go.

My Two Big Sector Bets for 2024 Pay Off Big

A year ago, I shared my “Two Big Sector Bets for 2024.” Those selections were based on the premise, “Once interest rates, and bond yields, start dropping, income investors will once again revert to high dividend payers such as REITs and utilities” in 2024.”

To capitalize on that opportunity, I recommended buying shares of real estate investment trust (REIT) Boston Properties (NYSE: BXP) and the Utilities Select Sector SPDR Fund (NYSE: XLU). I also suggested a call option trade for each of those securities.

Fortunately, my thesis for these trades proved true. In September, the Fed started cutting interest rates and bond yields came down. After peaking above 4.7 percent in April, the yield on the 10-year Treasury Note was a full percentage point lower five months later.

As I expected, income investors started buying up REITs and utilities. After bottoming out below $56 in May, BSX traded above $90 in October before pulling back to $80 last month. Meanwhile, XLU hit an all-time high above $83 last week after starting this year around $63.

The Options Trades Did Even Better

Those are good returns, but the options trades did even better. The call option for BXP that expires next month at the $50 strike price could be bought for $9 the day I made that recommendation. Yesterday, it could be sold for $29. That works out to a gain of 222 percent.

The XLU call option that expires next month at the $62 strike price could be bought for $7 a year ago. It was going for $20 yesterday, which equates to a gain of 186 percent. Both options still have five weeks to go until they expire, so those gains could end up being even bigger if the underlying securities continue to appreciate.

I am pleased with those results and will happily book those gains. However, I would not repeat those trades again. The macroeconomic environment today is very different from a year ago.

Also, it is not yet clear exactly how president-elect Trump will go about implementing his campaign promises to lower taxes, increase import tariffs, and bring down food prices. I’ll need to see those details before assessing their implications for the financial markets.

Nuclear Power is Still Alive

For that reason, I am reluctant to make predictions for 2025. However, there are some trades that should work out regardless of how the transition to the new administration goes next year.

One trade opportunity that intrigues me is in the energy sector. Trump has made clear his intent to increase production of fossil fuels in this country. At the same time, he opposes most forms of renewable energy.

One form of clean (but not renewable) energy that hasn’t gotten much attention lately is nuclear power. Contrary to popular belief, the United States still has an active nuclear power industry. The most recently built nuclear reactor was put into service eight months ago in Georgia.

If Trump is serious about defunding renewable energy, then he will need a substitute source of clean power to gain some measure of bipartisan support. And when it comes to heating homes and lighting office buildings, nuclear power is a relatively inexpensive source.

Beneath the Radar, for Now

For the purposes of this opportunity, I’m going to use Cameco Corp. (NYSE: CCJ). Cameco is headquartered in Canada and is one of the world’s largest producers of enriched uranium.

There was nothing exceptional about the company’s fiscal 2024 Q3 results released a month ago. They were good enough to keep the stock on the rise, but not so good as to draw Wall Street’s attention to the company. Recently, its share price has been trending sideways around $59.

Yesterday, the call option that expires in January 2026 at the $60 strike could be bought for $13. That means CCJ must appreciate at least 22 percent for this trade to be profitable.

That may seem like a lot to ask from a mining stock in just 13 months. And it would be, under normal circumstances. But I suspect next year will be highly abnormal for the energy sector, in which case this trade could be a big winner.

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