7 Stocks to Buy and Hold Forever

Welcome to Smart Money! My name is Eric Fry, and I’m glad you’re here.

There’s no perfect investment method. If there were, we’d all be millionaires and you probably wouldn’t be reading this letter.

But there is a way to allocate your assets intelligently, so you set yourself up for the best chance at success…

There are multiple facets to this strategy, but the one I want to focus on today is stocks to buy and hold forever.

You should think of these investments as your core holdings – your “Forever Stocks.” Treat these Forever Stocks as your “Elite 8” or “Top 10” – or whatever number you decide on. In total, these stocks should represent about 25% to 35% of your total portfolio.

These are the stocks you hold through thick and thin, unless the rationale for owning them changes significantly or you decide to replace one of them with a different stock.

Obviously, Forever Stocks will suffer during a severe bear market, just like ordinary stocks. So any investor who holds onto stocks like these during a sell-off is likely to suffer mark-to-market losses.

But these losses are a small price to pay for big, long-term gains…

And today, I have seven stocks that I consider to be some of the best “Forever Stocks” out there.

Let’s get started…

2025 Stock No. 1: Corning Inc.

If we were to play a word-association game and I said, “Artificial intelligence,” you might respond with something like “Nvidia,” or “Google,” or maybe “robots.” You probably would not say “Corning.”

But as it turns out, this iconic glass maker could benefit significantly from the AI boom, as a classic “picks and shovels” play.

For more than 170 years, the Corning Inc. (GLW) name has been synonymous with best-of-breed glass products. It has continuously innovated and set the industry standard for excellence.

In 1879, a 32-year-old Thomas Edison approached Corning with the concept of a lightbulb. This new invention would require a specialized glass that would be stronger than typical window glass but could also encase delicate filaments inside the bulb. Corning fulfilled the mission and became Edison’s sole supplier.

Over the ensuing decades, Corning produced a variety of glass-based marvels, dominating one industry after another. In the 1960s, for example, Corning was producing 100% of the world’s TV screen glass.

In 1970, Corning introduced the world to the company’s most marvelous marvel of all: low-loss fiber optics. With this groundbreaking invention, thin strands of Corning glass could replace copper wire in telecommunications networks and transmit millions of bits of information per second via photons (pulses of light), rather than electrons.

Thus, the world of optical communications was born… and it has continued to thrive ever since.

Today, the company operates in five different business segments – Optical Communications, Display Technologies, Environmental Technologies, Life Sciences, and Specialty Materials – each of which has been battling cyclical headwinds for the last three years.

Despite these challenges, third-quarter 2024 results exceeded expectations, being led by strong performance in Optical Communication. The segment saw a 55% year over year sales increase in its Enterprise business, fueled by growing demand for optical-connectivity products used in generative AI. Meanwhile, Display Technologies raised prices and projects segment net income of $900 million to hit $950 million in 2025, with a target net income margin of 25%.

But throughout good times and bad, Corning continuously invests in its future. In 2023, the company spent about $1 billion on research and development, just like it has every year since 2018.

These sizeable R&D efforts help fortify Corning’s dominant position in its primary markets. Additionally, the company’s innovative product refinements and launches enable it to advance the over-arching strategy it calls “more Corning.”

“We aren’t exclusively relying on people just buying more stuff,” CEO Wendell Weeks explains. “We’re putting more Corning into the products that people are already buying.”

One notable example of the “more Corning” strategy at work is the Mercedes-Benz hyper-screen dashboard display, which features a Corning “Gorilla Glass” cover nearly five feet wide. As a result of commercial successes like these, Corning now generates $100 of revenue per car on some models – up from just $15 a few years ago.

Now, AI has come to power a massive “more Corning” upgrade cycle.

“More AI”

The path from AI to Corning is fairly direct and intuitive. AI technologies require enormous processing power from data centers. Because this new source of demand is surging, the companies that operate data centers are ramping up their capacity by building new centers and/or boosting the capacity and speed of existing centers.

That means surging demand for the optical fiber and components that Corning produces. Importantly, the growing AI workloads not only require more data centers, but also more fiber optic connections per data center.

According to CEO Weeks, modern data center systems that rely on Nvidia Corp.’s (NVDA) popular Hopper H100 GPUs require 10 times more fiber optics than a conventional data center server rack.

As Weeks explained on CNBC, “We’ve invented new fibers, new cables, new connectors, and new custom integrated optical solutions to dramatically reduce installation costs, overall time and space, and carbon footprint.”

Therefore, it is easy to see how more data center processing power means “more Corning.” On average, Corning estimates that data centers running AI large language models (LLMs) will require five times more optical connectivity than they have today.

In 2024 alone, hyperscalers like Alphabet Inc. (GOOGL), Amazon.com Inc. (AMZN), and Meta Platforms Inc. (META) invested about $200 billion in data centers, hardware, and other technologies required to deploy generative AI models.

This massive investment caps a multi-year data center construction wave that has doubled the total capacity of hyperscale data centers during the last several years, according to Synergy Research Group. The Group predicts capacity will double again during the next few years, as 120-130 new hyperscale centers come online each year.

This building boom is finally showing up on Corning’s order books, with the company citing “strong adoption of our new optical connectivity products for Generative AI.”

Coincident with the data center boom, Corning is seeing trend improvements in its other major end markets, like smartphones. As a result, Weeks believes a $3- to $5-billion revenue surge will land on Corning’s income statement over the next year.

If these expected revenues arrive in a timely manner, Corning could earn as much as $3.00 per share within one year, and $3.50 within two years. At that level of profitability, Corning shares will be trading for 15 times 2026 earnings and just 13 times the 2027 result.

Obviously, this hoped-for revenue surge is not yet in the door. But the trajectory is very promising. If/As/When this revenue does materialize, Corning shares could easily double from the current quote.

In the wake of a favorable Barron’s story about Corning in June 2024, and the company’s subsequent upward earnings revision, the stock is no longer the “secret” AI play it once was.

However, it remains a relatively cheap and underappreciated AI play.

So, as these tech darlings like Nvidia and Amazon continue to prosper, I would favor the unloved Corning for the next phase of the AI boom.

2025 Stock No. 2: Intel Corp.

Intel Corp. (INTC) made headlines once again during last year’s market plunge… the wrong kind. A disappointing quarterly earnings announcement triggered a massive 30% selloff. These downbeat results call into question any bullish expectations for Intel, including my own.

However, over the next few years I expect the unpopular shares of Intel to outperform the wildly popular shares of tech darling Nvidia Corp. (NVDA).

Admittedly, based on financial results from the last few years, Nvidia and Intel are not even in the same league. Nvidia is a major league Hall of Famer, while Intel is a little league benchwarmer. But the stock market valuations of both companies amply reflect the disparities between them.

For most of the last two decades, both stocks traded for a similar valuation, based on enterprise values (EV) to sales. But today, Nvidia trades for a whopping 32 times, while Intel trades for less than two times EV to sales.

Nvidia’s high-flying stock anticipates ongoing Hall of Fame results, while Intel’s depressed stock anticipates endless disappointment. It reflects a company that will continue riding the bench at the little league level for a long while.

Therein lies today’s investment opportunity. Even modest signs of improvement at Intel could propel the stock to much higher levels.

Clearly, Intel’s past has been disappointing in the extreme. But I’m not abandoning this name just yet.

In some situations like this one, I would suggest moving on to other opportunities, but I’m resisting that temptation with Intel. I believe the company’s long-term strategy will succeed… and generate substantial profit growth over the long term.

The core of this strategy is for Intel to become the dominant domestic manufacturer of semiconductors, while also boosting the competitive strengths of the chips it designs. These goals are still within reach, but they are excruciatingly difficult to achieve, and very expensive.

Intel is spending tens of billions of dollars to advance its goals, which is crippling its near-term profitability and straining its balance sheet.

The higher the price tag increases, the fewer the investors who applaud Intel’s strategy. They believe it is simply too costly and too risky. Maybe so, but Intel does not have the luxury of resting on its laurels.

No tech company ever does.

The business of technology is always and forever a business of rapid obsolescence. That’s why it is a business that requires massive, ongoing capital expenditures and research and development… especially in the wild, wild world of artificial intelligence.

AI is the most creative – and destructive – technological force that humanity has ever encountered, which is why all the major technology giants are ramping up their capital spending to prepare for it.

Intel’s ambitions may be audacious, bordering on outlandish, but their scale is not unique in the tech sector. As a New York Times story reported last year…

Big technology companies show no signs of slowing their spending on artificial intelligence, even though a payoff still looks a long way away… The tech industry’s biggest companies have made it clear over the last week that they have no intention of throttling their stunning levels of spending on artificial intelligence, even though investors are getting worried that a big payoff is further down the line than once thought.

In the second-quarter 2024 alone, Apple Inc. (AAPL), Amazon, Meta, Microsoft Corp. (MSFT) and Google’s parent company Alphabet Inc. (GOOGL) spent a combined $59 billion on capital expenses, 63% more than a year earlier and 161% more than four years ago.

Intel is making a similarly massive commitment to the AI-centric world it anticipates. The critics say Intel cannot afford to make these investments. I say that Intel cannot afford not to make them.

As Sundar Pichai, CEO of Alphabet, has said, “The risk of underinvesting is dramatically greater than the risk of overinvesting.”

2025 Stock No. 3: Oracle Corp.

This next “Forever Stock” is not a “hidden gem.” It is not an overlooked “turnaround play.” It is not an up-and-coming tech newbie. It is one of the bluest of blue-chip stocks in the technology sector.

Its name is Oracle Corp. (ORCL).

I believe this company’s story, and its growth potential, is “Nvidia-like.”

Like Nvidia Corp. (NVDA), Oracle is well known and not undervalued, based on traditional valuation metrics. On the other hand, investors might still be underestimating the company’s technological prowess and long-term earnings potential.

These characteristics resemble Nvidia’s investment profile from July 2022. At that time, Nvidia’s stock was trading for 23 times estimated next-year earnings, just like Oracle stock is today. Also at that time, Wall Street analysts were expecting Nvidia to generate 20% sales growth during the next two years, which is slightly less than the revenue growth analysts expect Oracle to generate until 2026.

But of course, Nvidia trounced those expectations, which enabled the stock to skyrocket and become a modern-day legend. Since the end of July 2022, Nvidia shares have gained around 650%.

I am certainly not predicting an identical future for Oracle. However, I am expecting Oracle to surpass Wall Street’s current earnings expectations during the next two years, and, therefore, deliver a market-beating stock market result.

The company may be a legendary “old-timer” of the technology sector, but thanks to savvy, forward-looking strategic planning, it has become a dynamic AI play.

For starters, Oracle provides industry-leading cloud infrastructure solutions. Additionally, Oracle’s small but fast-growing healthcare solutions business could deliver surprisingly strong long-term growth.

Lastly, the company’s near-monopolistic data-base solutions can grow as rapidly as the cloud itself. Even Oracle’s direct competitors in the data center industry are integrating the company’s database solutions into their cloud offerings. Last year, for example, Amazon’s Amazon Web Service (AWS) became the last of the “Big 3” cloud providers to strike a strategic partnership with Oracle.

This new alliance will enable AWS cloud customers to access the full functionality of Oracle’s data base solutions and integrate them with the apps available on AWS. Previously, Oracle has inked partnership deals with Microsoft Corp. (MSFT) and Google Cloud. Under the Google deal, for example, Oracle will run 12 Oracle Cloud Infrastructure (OCI) data centers inside the Google Cloud.

Major alliances like these will power long-term growth at Oracle, no matter which cloud providers gain the largest market share. But before examining other aspects of Oracle’s future growth potential, let’s take a brief look at the company’s past.

The Founding of This Blue-Chip Stock

In the late 1970s, Ellison, one of the three co-founders of Oracle, stumbled across a research paper that contained a detailed outline of a digital database. It was a way of using specialized software to organize data so that information could be retrieved efficiently, even when huge amounts of it is stored.

The company’s first customer – the CIA – called this product “Oracle” because it would provide them with all the answers.

Since then, Oracle has become an increasingly dominant database and cloud company. Roughly 98% of all Fortune 100 companies now use Oracle as their primary database, and the high switching costs of the technology has kept customers loyal. Migrating databases require rewriting existing code, and most IT departments would prefer to stay with existing providers than risk any data loss.

Oracle has also benefited from its early strategic decision to adopt both on-premise and cloud products. On-premise servers are charged licensing fees to use Oracle’s products, while its cloud services are provided as infrastructure-as-a-service. The two offerings generate roughly equal dollar-amount sales.

The Austin-based firm has also been pushing into other services. In 2016, the company bought NetSuite, an enterprise resource planning (ERP) firm focused on small and medium-sized businesses. In 2021, it bought Cerner, an electronic health record system.

Oracle operates the industry-standard for relational databases – a structured method of data storage that tracks where each piece of information is kept. It’s a system that’s used by everyone from financial institutions to GenAI companies.

These customers are now employing more data and processing power than ever before. Even Microsoft-backed OpenAI signed a major deal with Oracle after Microsoft allegedly failed to provide enough compute power to effectively run ChatGPT. Google inked a significant agreement with Oracle around the same time.

The main services OCI provides are…

Infrastructure as a service (IaaS), which enables customers to build, deploy, and maintain secure, scalable environments.
Software as a service (SaaS), which enables customers to build, deploy, integrate, and extend applications in the cloud.
Oracle Autonomous Database, which provides workload-optimized cloud services for data warehousing and transaction processing.

Because OCI provides such a comprehensive suite of cloud solutions, the exponential growth of AI technologies will supercharge demand for those solutions, either on a stand-alone basis or as part of the offerings from major cloud providers like AWS.

For example, each new generation of large language models (LLMs) is using more parameters, more training data, and more “tokens.” Wolfram CEO Stephen Wolfram once calculated that every token (equivalent to 0.75 words) used by GPT-3 required 175 billion calculations to process. GPT-4 reportedly uses six times as much.

That will directly benefit Oracle, which charges customers based on database and computational usage. Oracle also stands to benefit from improvements in quantum computing. In March 2024, the firm partnered with Swiss startup QMware to explore hybrid quantum compute, where quantum simulations are run on Oracle’s Cloud Infrastructure. Future versions will likely have quantum computers working in parallel with traditional ones, given the strengths and weaknesses of each system.

And then there’s the whole healthcare “wild card.”

AI Healthcare Ambitions

In April 2024, Oracle joined the rush to the “Healthcare Belt” – a fast-growing hub of healthcare firms in Tennessee – by announcing it would be relocating its headquarters to Nashville. Explaining the move, Oracle founder Ellison stated bluntly, “It’s the center of the industry we’re most concerned about, which is the healthcare industry.”

It’s why Oracle spent $28 billion to purchase Cerner in 2022.

Days after Oracle closed its acquisition, Ellison outlined a compelling plan to build a new generation of modern, secure healthcare information systems. He detailed four specific benefits he expects the merger with Cerner to deliver…

Better information for public healthcare policymaking.
Easier interfaces for doctors and nurses.
Improved data-based, communication channels for patients and doctors to talk and share data.
Enhanced AI models for researchers and drug developers.

That last benefit is particularly fascinating because it stems directly from the unique power of AI.

As Oracle explains…

The new Oracle systems will be open so that technology partners and medical researchers will be able to develop AI-based modules and integrate them into the electronic health record system. Those modules will allow organizations with a great deal of domain expertise to share that expertise across the country and throughout the world. For example, Oracle partner Ronin worked with MD Anderson Cancer Center, one of the world’s top centers devoted to cancer patient care and research, to develop an AI module that monitors patients as they work through their treatment plans to reduce hospitalization.

The Cerner operations inside Oracle contribute less than 15% of total company revenues, but that percentage should grow rapidly as Ellison pursues his ambitions in, once again, the “industry we’re most concerned about, which is the healthcare industry.”

It’s hard to overstate the potential of these AI improvements in healthcare. The Federal Government currently spends more on Health and Human Services (25% of budget) than on any other department. In other words, we spend more on healthcare and Medicare than Social Security (23%) or the Department of Defense (12%).

The costs of medical care are only growing. By 2030, the Centers for Medicare & Medicaid Services believe that health spending will equal 32% of total U.S. GDP.

Here’s where Oracle’s AI ambitions come in. By using AI to help hospitals track patients… drug researchers to develop new therapies… and reduce costs in the system… Oracle aims to become a significant part of how Western healthcare will evolve for the 21st century.

Because Oracle’s cloud infrastructure and its healthcare operations both provide comprehensive services to entire industries, the company should benefit from the overall growth of both AI and healthcare. In effect, Oracle is neck deep into of the fastest growing aspects of the modern economy: AI and healthcare.

That makes Oracle an unequivocal “Buy.” Even if we don’t know which LLM will come out ahead or which drug maker will use GenAI to discover the next cure for cancer, it’s clear that Oracle will benefit.

2025 Stock No. 4: GE Healthcare Technologies Inc.

In 1979, General Electric introduced its famous tagline, “We bring good things to life.”

One of the things this iconic American company brought to life was its stock price, which soared more than 10,000% from the end of 1979 to its peak in 2000.

But shortly after that peak, the lights started flickering at GE, and its share price slumped for nearly two decades. Between 2000 and 2018, GE stock produced an abysmal 80% loss – leading to its ignominious eviction from the Dow Jones Industrial Average.

Enter Larry Culp, who became CEO in October 2018. The widely respected and heavily compensated CEO accepted the daunting task of reversing GE’s long-term decline.

To spearhead GE’s turnaround, Culp proposed a major restructuring in 2021 ago that would split the company into three distinct entities – each of which would become standalone publicly traded companies.

That action plan took its first of three giant steps forward when GE spun out its healthcare operations as GE HealthCare Technologies Inc. (GEHC) in 2023.

The next step combined GE Renewable Energy, GE Power, and GE Digital into a new operation called GE Vernova – which GE spun out as a new standalone entity in 2024.

For the final step, the remaining third of GE became GE Aerospace and also trades in the stock market as a standalone company as of 2024.

Obviously, shuffling divisions around and giving them new names does not necessarily create any additional value for shareholders. But the new GE HealthCare spinoff possesses some compelling investment attributes.

The Next Step for Healthcare

GE HealthCare is interesting – both for what it is already and what it could become.

As one of the oldest “new” healthcare stocks in the market, GE Healthcare is a blue-chip company with a formidable presence in the medical imaging industry.

The company operates in more than 160 countries. It sells medical equipment like CT scans, MRIs, X-rays, and ultrasound machines. It also sells service contracts on those machines.

GE HealthCare’s installed base of four million medical machines and devices serves more than one billion patients per year. The company conducts its operations through four main business divisions…

Imaging…
Ultrasound…
Patient Care Solutions…
And Pharmaceutical Diagnostics.

During the first quarter of 2024, all four divisions produced double-digit revenue growth (on a constant currency basis) and are on track to deliver high single-digit growth for many years to come.

The company is a leader in the field of AI-enabled medical devices. Of the more 850 devices included by the U.S. Food and Drug Administration on a recently updated list of AI-enabled device authorizations, 72 are from GE HealthCare.

From an investment perspective, therefore, GE HealthCare is a two-part story. It is a solid, steadily growing medical imaging company that also includes considerable fast-growth potential from its AI product line and investments.

According to Grand View Research, artificial intelligence will become a key driver of medical device innovation over the coming decade. The research firm predicts the AI component of the healthcare market will skyrocket from $15.4 billion in annual sales in 2023 to more than $200 billion in 2030. That’s a compound annual growth rate of 37.5%.

To support its robust forecast, Grand View explains…

Artificial intelligence and machine learning algorithms are being widely adopted and integrated into healthcare systems to accurately predict diseases in their early stage based on historical health datasets…

Healthcare functions such as diagnostics, patient management, medication management, claims management, workflow management, integration of machines, and cybersecurity saw a remarkable surge in the integration of AI/ML technologies.

Importantly, GEHC’s AI solutions do not replace medical professionals; they assist them. The company’s AI-enabled devices and services operate alongside traditional medical practitioners to support and optimize their efforts.

As Vignesh Shetty, a Senior Vice President at GE Healthcare, explains…

GE Healthcare’s digital strategy is to look at AI to help clinicians achieve clinical and operational outcomes that create maximum impact for patients, providers, and health systems… AI is an incredible lever to tackle problems at a speed and scale that our providers are coming to expect, to help save lives and improve outcomes for millions of patients everywhere.

GEHC is embracing this new paradigm with gusto.

2025 Stock No. 5: PayPal Holdings Inc.

PayPal Holdings Inc. (PYPL) is a titan of the digital payments industry.

The company traces its history to the year 2000, when Elon Musk merged his online bank, X.com, with Peter Thiel’s software company, Confinity, to form PayPal. The merged entity started spinning gold almost immediately for Musk and Thiel, as the inventive pair sold the company to eBay just two years later for $1.5 billion.

Then in 2015, eBay spun out PayPal as a separately traded company, which it has remained ever since. (Interestingly, 2015 was also the year that Musk and Thiel partnered up again to form OpenAI, the company that would go on to create the AI sensation, ChatGPT.)

During the last several years, the tally of active accounts on PayPal’s platform has swelled 63% to 435 million, while the annual volume of processed payments on its platform has doubled to a whopping $1.37 trillion.

PayPal’s dominant position in the “branded checkout” segment has powered most of that growth. The “PayPal/Venmo” checkout button you might see when shopping online is an example of that business. 80% of the top 1,500 retailers in North America and Europe feature PayPal in their digital wallets.

But PayPal is not taking its success for granted. The company is fortifying its market leadership by integrating leading-edge AI and machine-learning processes into key aspects of its operations. For example, the company uses AI to detect fraudulent transactions and to boost the approval rate of valid transactions.

Buy Now, Pay Later

PayPal’s growth strategy relies on three key initiatives…

Strengthening its core “branded checkout” solution…
Growing its “unbranded checkout” solution…
And developing and integrating AI processes that increase merchant sales, boost customer “stickiness,” and/or reduce operating expenses.

Branded Checkout is the foundation of PayPal’s business because of its high-margin fee structure. This business segment accounts for about one-third of the Total Payment Volumes (TPVs) the company processes, but it produces more than half of its total revenues.

PayPal is the market leader in branded online checkout with 35 million merchants on that platform. Although the company does not possess the commanding 99% merchant acceptance rate of legacy credit card companies like American Express and Mastercard, it has the largest acceptance rate of any “alternative payment method” (APM) provider. This category of payment solutions includes direct debit transactions, prepaid debit cards, and eWallets like PayPal, Venmo, Google Pay, and Apple Pay.

In 2020, PayPal launched a new “Buy Now, Pay Later” (BNPL) feature to bolster the appeal of its branded checkout offering.

This credit facility is similar to what established BNPL players like Klarna, Afterpay, and Affirm offer an immediate opportunity for shoppers to finance an online or in-store purchase at the point of sale.

Despite the brief operating history of PayPal’s BNPL offering, it has made rapid strides. Since launching BNPL, PayPal has issued loans to nearly 30 million customers. In 2022 alone, PayPal processed more than $20 billion of BNPL loans – up 160% from the prior year.

PayPal’s momentum in this market should propel it to undisputed leadership… and that’s no small matter in a sector that is growing as rapidly as BNPL consumerism.

BNPL-financed transactions now account for more than $300 billion in transactions worldwide.

Importantly, this category of transaction delivers an outsized benefit to merchants. PayPal customers who adopt BNPL solutions spend 30% more through PayPal than those who do not.

As PayPal attempts to expand its presence in the BNPL market, it will benefit from one major competitive advantage. The company has preexisting relationships with a huge swathe of the target market – both the merchants and the individual consumers.

Unlike its competitors, which must win new business to establish a BNPL relationship with a merchant, PayPal can deliver BNPL capabilities as a “bolt-on” to an existing relationship.

PayPal simply incorporates BNPL functionality into the existing checkout protocol. It is not a “new sale.” PayPal added BNPL capabilities to its existing relationship with Microsoft. Online shoppers at Microsoft’s Xbox Store can now access BNPL if they wish.

As CEO Dan Schulman explained…

Buy Now Pay Later continues to provide meaningful value to both our consumers and merchants. Over 32 million consumers have used our Buy Now Pay Later service since inception, at nearly 3 million merchants. We are now one of the most popular Buy Now, Pay Later services in the world… growing at 70% [year-over-year] on a currency-neutral basis.

Prudently, PayPal is working to “externalize” these loans by selling them to a third party, rather than retaining them on their own balance sheet. By selling the loans, PayPal removes the risk of holding bad loans.

The company took a giant step forward toward achieving that goal when it struck a deal to sell up to €40 billion of BNPL loans to the global investment firm KKR.

Under the terms of the agreement, KKR acquired PayPal’s existing European BNPL portfolio, along with future originations of eligible BNPL loans. PayPal will continue to conduct all the customer-facing activities of the loans, including underwriting and servicing.

This major transaction not only removes a large dollop of credit risk from PayPal’s balance sheet, but it also frees up capital to accelerate BNPL originations in Europe and/or to conduct shareholder-friendly activities like buying back stock.

PayPal expects to generate about $1.8 billion in net proceeds from this transaction and states that it will use a portion of the proceeds to boost its 2023 share repurchase program to $5 billion. In 2022, the company repurchased $4 billion in stock, which reduced the share count by about 3%.

Paving the Way

In addition to fortifying its leadership position in branded checkout, PayPal is expanding in the rapidly growing Unbranded Checkout segment.

The company refers to this solution as the PayPal Complete Payments (PPCP) platform, and it opens the door to a vast, new opportunity. Because this solution primarily serves small to mid-sized businesses, the total market opportunity is enormous. PayPal estimates the Total Addressable Market (TAM) to be roughly $750 billion.

The PPCP platform enables small businesses to accept credit cards and digital wallets as well as a range of Venmo and PayPal services. In April of 2023, PayPal gave this platform a major upgrade by adding Apple Pay to it.

That means that small businesses using PayPal as the backend for their payment processing can now accept Apple Pay alongside various other popular payment options.

Additionally, PayPal merchants can use their iPhone as a mobile point of sale terminal without the need for a dongle or other accessory device. Apple launched the technology in February of 2022.

CEO Schulman says that growing the unbranded checkout business has become a “strategic imperative” for PayPal – not just because it adds incremental revenue but also because it broadens and deepens customer relationships.

These expanded relationships produce vast troves of data that can fuel future AI enhancements.

2025 Stock No. 6: Bristol-Myers Squibb Co.

Bristol-Myers Squibb Co. (BMY) is one of the largest pharmaceutical companies in the world, with a number of drugs that treat diseases in immunology, cardiovascular, and oncology. This portfolio includes blockbuster drugs like Eliquis, a blood anticoagulant for stroke patients, and Opdivo, used for the treatment of advanced-stage non-small cell lung cancer.

Artificial intelligence has not yet created a new blockbuster drug from start to finish – from drawing board to pharmacy – but it has made major contributions to the drug development process. A recently approved therapy from Bristol-Myers benefited from such a contribution.

Here’s the story…

In the early 1990s, biopharma firms Eli Lilly and Co. (LLY) and Novo Nordisk A/S (NVO) discovered a new drug they called xanomeline. Early tests found it was helpful in slowing cognitive decline related to Alzheimer’s and reducing the delusions and hallucinations that come with the disease.

There was, however, a major problem. The side effects associated with xanomeline were so severe that more than 50% of Phase 2 study participants dropped out. Patients suffered debilitating nausea, vomiting, diarrhea, excessive salivation, sweating, and intense gastrointestinal problems.

Xanomeline was eventually shelved. But that wasn’t the end of the story…

Almost a decade later, a Boston-based company named PureTech got interested. They realized that xanomeline’s efficacy came from its ability to bind to certain receptors inside the brain, while its side effects were caused by activating receptors outside the brain. The company bought the rights to the drug from Eli Lilly for just $100,000, which by then had turned its Alzheimer’s efforts to other therapies.

“Conceptualizing the problem that way, it felt like if we could find a way to selectively activate receptors in the brain without activating them on the periphery, that felt like a solution,” PureTech executive Andrew Miller said in an interview with Fierce Pharma. “That leads to this ah-ha moment of this concept of KarXT, where we have two drugs that have the same target but the opposite effect — one activates the target, the other blocks the activation of the receptor.”

At that point, the issue transformed from a conceptual problem into a practical one.

The PureTech team had identified at least 65 binders and 114 suppressors that could be combined to offset xanomeline’s side effects. And they knew that testing all 7,410 combinations would have been impossible in real life.

To come up with a solution, PureTech’s team turned to predictive algorithms, a form of AI.

The details of their machine-learning process continue to be kept a trade secret, but we know that their formula eventually came up with a solution: a molecule named trospium chloride, a generic drug for bladder control that was previously approved by the U.S. Food and Drug Administration in 2004.

Coming Out Ahead With AI

It turned out that PureTech’s AI had stumbled onto a perfect combination.

Trospium chloride was not absorbed into the central nervous system, but otherwise bound itself to the same receptors as xanomeline. So, this second molecule was able to counteract xanomeline in the body, while leaving xanomeline to perform its work in the brain. In addition, the newly created drug’s ability to reduce delusions and hallucinations proved useful in a separate disease, schizophrenia.

These results were presented in a landmark Phase 2 trial in 2019.

Meanwhile, the business side of PureTech was also at work. The company spun out this division as Karuna Therapeutics, which Bristol-Myers acquired late last year for a stunning $14 billion. In turn, Bristol-Myers would finalize approvals with the U.S. Food and Drug Administration, which it received for schizophrenia.

It’s hard to overstate how important this drug, now known as Cobenfy, will become.

Cobenfy is considered the first medication for schizophrenia with a novel mechanism of action in more than 30 years. Analysts at Cantor Fitzgerald forecast Cobenfy to generate more than $1 billion in annual revenue by 2026.

In addition, Bristol-Myers plans to retest Cobenfy for its original purpose of treating Alzheimer’s, as well as bipolar disorder. Stifel analyst Paul Matteis believes that could help the drug achieve peak annual sales of $10 billion, which would suggest total lifetime sales north of $100 billion. If that were the case, Bristol-Myers’ initial $14 billion outlay would look like a rounding error.

All this was made possible by AI-powered drug development, and we foresee even greater innovations to come over the next decade as this technology improves.

Lilly – the original developer of xanomeline – has since become a leader itself in AI-powered drug discovery. That makes sense. They’ve seen one AI-developed blockbuster slip through their fingers… and are determined to avoid repeating that error again.

But Lilly’s loss is Bristol-Myers’ massive gain. The FDA’s approval of Cobenfy marks the start of a new chapter for the company. Investors may not fully appreciate the impact. Cobenfy is already a blockbuster drug, with the potential to become an even larger blockbuster.

As such, this new therapy is a great first step toward offsetting the “patent cliff” Bristol-Myers is facing.

Many of the company’s leading drugs are losing U.S. patent protection. Specifically, Eliquis, Opdivo, and Yervoy fall off patent during the next three years. Those three drugs, by themselves, account for more than half of Bristol-Myers sales.

That’s why investors have been steering clear of the stock. But even as revenues from these legacy drugs trend lower, the company’s “Growth Portfolio” of newly approved therapies is trending higher. Growth Portfolio revenues are growing more than 20%, year-over-year. Cobenfy’s approval will accelerate that trend.

A promising pipeline of additional drug therapies will likely add to this momentum. Therefore, taking into account both the dwindling revenues from legacy products and growing revenues from new products, Bristol-Myers is on track to post adjusted earnings per share of about $7.10 this year, then continuing to trend higher in the out years.

At that level of profitability, the stock is trading for a miserly eight times 2025 estimated earnings, while yielding more than 4.3%. I do not expect that depressed valuation to persist for long, especially not if other potential blockbusters in the Bristol-Myers pipeline gain approval.

2025 Stock No. 7: Royalty Pharma Plc

Now that the healthcare industry has entered the “Age of AI,” the opportunities to capitalize on it are popping up like weeds in a garden, or perhaps like bacteria in a Petri dish.

The biotech sector, in particular, is offering a compelling and timely opportunity. But investing in this high-risk sector can be a confusing and challenging endeavor.

A unique company named Royalty Pharma Plc (RPRX) removes some of the risk and confusion from the equation. As its name implies, the company manages a portfolio of royalties on both approved and development-stage drugs.

Typically, Royalty Pharma obtains royalties on a specific drug in exchange for providing financing to a university or pharmaceutical company. But sometimes, it simply purchases an existing royalty.

The company’s royalty partners include academic institutions like University of California, Los Angeles and New York University, as well as leading pharmaceutical firms like Sanofi SA (SNY), Pfizer Inc. (PFE), AstraZeneca Plc (AZN), and Merck & Co. Inc. (MRK).

Royalty Pharma is the largest company of its type, by far. In royalty deals above $500 million, it has a massive 77% market share. Including the small deals under $500 million, the company’s share drops to 53%. But the No. 2 small-deal royalty investor only has a 13% market share.

Importantly, Pharma is not merely dominant; it is enormously successful. Since going public in 2020, the company had invested $13 billion by 2024 to acquire royalties on 34 unique therapies, 17 of which are either currently or projected to be blockbusters.

The New York-based company’s royalty-based business model generates exceptionally high profit margins. Last year, for example, the company’s $3 billion of portfolio receipts produced $2.7 billion of portfolio cash flow, equivalent to a margin of 89%. On an earnings-per-share basis, the company posted net income of $1.88 last year. The stock is also yielding 2.8%.

Looking ahead, Royalty Pharma’s sales and profits should continue to grow as the development-stage drugs in its portfolio gain approval. Currently, it holds a total of 49 royalties, 35 of which are for approved drugs and 14 for development-stage drugs.

Additionally, RPRX continues to expand its pipeline by purchasing royalties on promising drugs in development.

During the last two years, for example, the company added royalties on eight therapies, including incremental royalties on a blockbuster drug called Evrysdi – a prescription medicine developed by Roche Holding AG (RHHBY) to treat spinal muscular atrophy (SMA) in children and adults.

Other notable royalty purchases include:

A 5.1% royalty on Adstiladrin from the Swiss company Ferring Pharmaceuticals. The FDA approved Adstiladrin in late December 2022 as a gene therapy for BCG-unresponsive non-muscle invasive bladder cancer. This royalty will increase to 8% this year.
A 9.15% royalty on Skytrofa, the first FDA-approved growth hormone therapy, from Ascendis Pharma A/S (ASND).

The frenetic M&A activity in the biotech sector adds an additional tailwind to Royalty’s profit growth. That’s because a takeover often accelerates the development timeline of drugs that are subject to royalties the company owns.

For example, immediately after Bristol-Myerspurchased Karuna in 2023, it fast-tracked development of Cobenfy, the new schizophrenia treatment that gained FDA approval in September. RPRX holds a 3% royalty on the first $2 billion of potential Cobenfy sales, and a 1% royalty thereafter.

The recently announced Novartis AG (NVS) takeover of MorphoSys AG (MOR) also could accelerate development and commercialization of therapies where RPRX holds a royalty. Notably…

A 3% royalty on the worldwide sales of Pelabresib, a novel and potentially practice-changing treatment option for patients with myelofibrosis.
A 3% royalty on the worldwide sales of Tulmimetostat, an early-stage investigational therapy for patients with solid tumors or lymphomas.

Looking ahead, the company plans to invest another $10 billion to $12 billion in new royalty deals over the next five years. But it will also spend a few dollars buying back stock.

As Royalty Pharma CEO Pablo Legorreta stated…

Our priority, as we’ve said multiple times in the past, is to actually make great investments because that’s what’s going to drive growth and value creation for all of our investors, including ourselves.

But then what we have also seen is a big disconnect in the intrinsic value of Royalty Pharma, our portfolio and our ability to continue to generate value by deploying capital, and that was what prompted this $1 billion share buyback program…But we are obviously going to prioritize going forward new royalty investments over buying back shares.

Despite the management team’s impressive track record, and the company’s earnings growth trajectory, the stock seems conspicuously undervalued. It is trading for less than six times this year’s estimated adjusted earnings per share of $4.39.

For perspective, that brutish valuation is less than one-quarter the valuation of the S&P Pharmaceutical Index. This gaping valuation disparity will not last.

Moving Forward

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Eric Fry