These three stocks have game-changing megatrends behind them, which aren't always immediately apparent when first looking at the stocks. Here's the hidden growth potential in machine-vision company Cognex Corporation (CGNX -2.44%), positioning and workflow-technology company Trimble (TRMB -1.52%), and Delta Air Lines (DAL -1.83%), and why all three are great stocks to buy for 2025.
AI and automation will drive demand for Cognex's machine-vision solutions
It's not easy when customers in your three major end markets are all under pressure, but that happened to Cognex over the last couple of years. The company's machine-vision technology helps manufacturing companies control and monitor assembly line production (key end markets include automotives and consumer electronics), and logistics companies (e-fulfillment) improve throughput efficiency in their centers.
Image source: Getty Images.
Unfortunately, relatively high interest rates have curtailed automotive sales, causing automakers to scale back production plans and capital investment. Similarly, consumer electronics companies have pared back investment in developing new products and assembly lines. Meanwhile, logistics companies have been affected by a combination of slowing spending and a retraction from previous years' boom in investment caused by the pandemic.
It's added up to a miserable period of sales for the company.
CGNX Revenue (TTM) data by YCharts.
But here's the thing: History suggests these cyclical issues will all correct in time. Automakers and consumer electronics companies can't forestall investment in new vehicles/products, or they will fall behind their competition. Similarly, no one disputes the long-term trend of e-commerce spending: E-fulfillment warehouse spending will grow again when companies need more capacity.
Furthermore, machine-vision secular-growth drivers (increasing adoption of automation to cut costs and improve productivity, and growth in artificial intelligence and Internet of Things (IoT) technologies that will amplify the value of data captured by machine vision) will only strengthen in the coming years. As such, this will likely prove a trough year for an exciting growth stock.
Trimble's stock also has AI and Internet of Things drivers behind it
The company's roots are in precise positioning hardware, but its future lies in integrating software into that technology to become an ever more prominent part of its customers' workflow. This can easily be seen in the infrastructure and construction industries where Trimble's solutions help project managers, engineers, architects, and building owners design and precisely monitor and manage their projects. This results in reduced waste, significant construction and procurement savings, and enhanced cost estimation -- a common problem in the infrastructure industry.
In common with Cognex, Trimble's solutions benefit from increasing awareness and adoption of digital technology, and the significant benefits of improvements in analytics capabilities. Moreover, the company has a profit-margin and cash-flow expansion opportunity from the shift in revenue mix moving away from hardware products toward software and recurring subscription revenue as customers use its software for daily decision making.
Delta Air Lines isn't just an airline
Two "hidden" trends favor Delta Air Lines and its earnings growth potential. The first is its increasing growth in non-main cabin ticket revenue, including premium cabin revenue and its remuneration from American Express from its co-branded credit cards. The second comes from a newly found discipline in the airline industry regarding reducing capacity when necessary.
Remuneration from American Express has grown from $2 billion in 2010 to an estimated $7 billion in 2024, and management plans to hit $10 billion over time. Not only does it help to diversify Delta's income stream, but the credit cards and SkyMiles program also help engender customer loyalty and engagement. In addition, having higher-income credit card holders ties in with Delta's targeted shift toward premium cabin sales.
The second driver is more debatable, but the evidence from 2024 when the management of airlines like United Airlines and Delta both argued that the industry had acted to reduce capacity when there was overcapacity in the summer is a great sign.
Image source: Getty Images.
It suggests Delta can hit its aim of generating $3 billion to $5 billion in free cash flow (FCF) over the next three to five years. Given that the current market cap is less than $39 billion, those estimates would make Delta look like a great value.
