Stronger Dollar, Stronger Returns: 3 Top Stock Picks for 2025

Key Points

• Continued strength in the homebuilding sector is likely to be a tailwind for Home Depot, even if tariffs raise the price of imports.
• The TJX Companies business model caters to consumers who will stay on the hunt for value.
• Lockheed Martin is a best-in-class defense stock that will continue to lead the sector despite threats of cuts to the defense budget.  

Despite its own volatility in 2024, the U.S. dollar is finishing the year on a high note. There are several reasons for the dollar’s strength, not the least of which is enthusiasm over the incoming Trump administration's pro-growth policies. 

However, most of the dollar’s strength can be summed up by the expression that the United States is the best house in a bad economic neighborhood. That is, the U.S. economy is outperforming that of the G10 countries.

This is a bullish outlook for the 10-year Treasury note but could pose a headwind for some stocks in 2025. A strong dollar paired with persistent inflation may deter the Federal Reserve from cutting interest rates. In fact, that combination could spur an interest rate increase at some point. 

But this article is about opportunities, not obstacles. So, let’s look at three stocks likely to benefit from a stronger U.S. dollar in 2025. 

Home Depot Has a Growth Story Even if Tariffs Get in the Way

Home Depot NYSE: HDis one of the country’s leading importers. A stronger dollar would make imports cheaper, boosting the home improvement giant’s bottom line. However, the specter of tariffs looms over that story. Nobody knows exactly what the extent of President-elect Trump’s tariff policies will be, but it’s certainly one to watch.

On the other hand, it took only a small drop in interest rates for investors to see some green shoots in the housing market. But even if current homeowners aren’t moved to list their homes, the supply side of the equation is likely to improve. The homebuilding sector was strong in 2024, and that growth will likely continue in 2025.

HD stock is up 14% this year. That’s good for most years, but it’s nearly half of the growth in the S&P 500. Analysts have a consensus price target for HD stock of $426. That’s about an 8% upside. However, several analysts have been raising their price targets since the company’s earnings report in November.

That growth comes in addition to a dividend that has been growing at an average rate of over 11% in the last three years and currently pays out $9 per share annually. 

Higher Prices Play to the Strength of This Off-Price Retailer

It's been a mixed bag for retail stocks in 2024, but one group that has stood out is the stock of off-price retailers like The TJX Companies Inc. NYSE: TJX. These companies have a loyal customer base at any time, but they truly stand out when consumers are looking for value. 

That's usually the case when there’s a stronger dollar because it brings inflation. Putting tariffs and trade wars aside, it will take time to work through the current inflation in the economy. As a consumer, you know that prices can go up quickly, but they don’t move down nearly as fast if they do at all. In most cases, the economy must grow in a sufficient fashion to allow consumer income to rise to a level at which they can absorb the higher prices.

However, while inflation is a challenge for consumers, it’s an opportunity for investors. As it relates to TJX stock, all you have to do is follow the customers. The hunt for value is playing right into the company’s value proposition. And that’s why analysts are raising their price targets on TJX stock even though it has already increased by 32% in 2024.

This Defense Stock Will Survive the DOGE Plan

Even before the announcement that President-elect Trump would be creating the Department of Government Efficiency (DOGE), many legislators were eyeing the country’s massive defense budget as a place where cuts may be necessary.

That would seem bearish for defense stocks like Lockheed Martin Corp. NYSE: LMT. However, Lockheed isn’t just another defense stock. It’s the nation’s preeminent defense contractor, which means there will still be plenty of government contracts for the company. The company also has contracts with other foreign governments, and the revenue from those contracts will be more valuable as the income is converted into U.S. dollars.

Plus, the company will likely benefit from lower production costs from cheaper imported materials. Ideally, that will allow Lockheed to offer more competitive pricing and win additional contracts.

Analysts give LMT stock a consensus price target of $612.29, which is 25% higher than its closing price on December 27, 2024.