In this article, we will take a detailed look at the best innovative stocks to buy according to analysts.
Innovative stocks are the companies that continuously invest in developing new products, services or even entire business models, enabling them to stay ahead of competition and thrive in any stage of the market cycle. The ability to innovate can be considered a form of adaptability, which is required to survive in a tough and hyper-competitive business environment. It also helps businesses build a robust competitive advantage, often called “business moat”, which is a determinant of profitability and ability to gain market share and thus grow above the industry growth pace.
Empirical research links superior profitability (as measured by Return on Equity or Return on Invested Capital) and the ability to gain market share with superior stock price returns. Analysts and researchers find that such companies are often the ones that focus on innovation and constantly reinvent themselves to prevent the competition from catching up. Notable examples of successful innovation in the past are the creation of user-friendly computers, which cemented some of the widest moats that thrive until this day, or completely new production and fulfillment models such as the “just-in-time”. The importance of investing in innovative stocks has been recognized by many legendary investors, such as Peter Lynch. Here’s what he said on this topic:
“The best companies to invest in are those that innovate and are growing within industries you understand.”
READ ALSO: 10 Best Innovative Stocks that Pay Dividends
The best innovative stocks are even more favored now than in the past, as technological advancements are disrupting industries faster than ever. For instance, the proliferation of the AI trend is a game changer in many industries, as this new technology not only allows businesses to slash operating costs and optimize processes but can also create complementary products, services, and even entirely new market opportunities. The companies that are the first to capitalize on AI capabilities will be the ones to gain market share, become more profitable than ever, and thrive for years to come. Likewise, the pandemic, high inflation, high interest rates, and geopolitical tensions have uncovered other areas that require innovation – sustainable supply chains are now more important than ever, while automation, AI, or robotics initiatives are required to preserve profitability amid inflationary pressures.
Investors often inquire how (if at all) innovative stocks can help them build better portfolios, with higher expected returns and better resilience to uncertainty and turmoil, similar to the one experienced by the US economy at the moment. The answer is simple – innovative stocks can be found in a wide range of industries, which means that one could build a completely balanced portfolio by incorporating strictly innovative stocks. Such an approach will likely increase the overall quality of the portfolio and metrics like Return on Equity and revenue growth rate, which are strong determinants of stock price returns.
We believe that innovative stocks are a reliable way to hedge against the worst-case scenario for the US economy—where sharp cuts in public spending as well as the tariff wars will cause a significant economic slowdown and fuel inflation, leading to potential stagflation and a prolonged bear market. Leading researchers, such as Yardeni Research and Goldman Sachs, have already significantly increased their odds that the US will enter a recession in 2025, as well as significantly lowered their target for the US stock market index until the end of 2025. Buying the best innovative stocks now could be the best way to find pockets of outperformance in the US stock market, as these stocks are most likely to find ways to offset inflation, cut costs, create new revenue opportunities, and thrive in any environment.
An entrepreneur presenting the latest technology innovation in electrical components.
Our Methodology
We screened the market and selected companies that actively prioritize and promote the development of new and groundbreaking ideas, products, services, or business processes. From that list, we picked 11 stocks with the highest average analysts’ upside as of March 30, 2025, and ranked them in ascending order. For each stock, we also include the number of hedge funds that own the stock as of Q4 2024, according to our proprietary database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
11. Pfizer Inc. (NYSE:PFE)
Average analysts’ upside: 24.00%
Number of Hedge Fund Holders: 92
Pfizer Inc. (NYSE:PFE) is one of the world’s biggest drug companies, best known for creating life-saving medicines and vaccines that aim to help people live longer and healthier lives. You might recognize the name from the COVID-19 vaccine, but PFE’s work goes far beyond that – they’re constantly innovating and researching new ways to treat serious diseases like cancer and infections. What makes the company stand out is how it blends deep scientific R&D with massive global reach, helping get treatments to people in nearly every corner of the world. PFE, as a reliable dividend payer with a strong financial position, ranked fifth on our recent list of 13 Best Healthcare Dividend Stocks to Invest in.
Pfizer Inc. (NYSE:PFE) delivered strong financial performance in 2024, with revenues of $63.6 billion versus $59.6 billion in the previous year and operational revenue growth of 12%, excluding COVID products, exceeding the expectations range of 9% to 11%. The company demonstrated improved commercial effectiveness with strong contributions across its product portfolio, primarily driven by the VYNDAQEL family, PADCEV, Eliquis, and NURTEC, while also achieving expanded margins through cost management initiatives. The company successfully integrated the Seagen business, creating one of the best oncology companies in the industry, and implemented significant organizational changes, including splitting commercial operations into US and international divisions.
Looking ahead to 2025, Pfizer Inc. (NYSE:PFE) is focusing on improving R&D productivity while maintaining an emphasis on margin expansion, commercial excellence, and shareholder-friendly capital allocation. Notably, PFE has increased its cost savings target to $4.5 billion by the end of 2025 and remains committed to its delevering targets and maintaining and growing its dividend. The company’s pipeline shows promise with multiple potential catalysts ahead, including at least 4 regulatory decisions, up to 9 potential Phase III readouts, and 13 potential pivotal program starts expected in 2025. With a long and promising research pipeline, PFE is one of the best innovative stocks to consider.
10. Tesla, Inc. (NASDAQ:TSLA)
Average analysts’ upside: 25.36%
Number of Hedge Fund Holders: 126
Tesla, Inc. (NASDAQ:TSLA) has evolved from being a car company to a tech-driven energy and transportation giant trying to change how the world moves and powers itself. Best known for its sleek electric vehicles, TSLA also builds solar panels, home batteries, and giant energy storage systems that help power entire communities. What makes Tesla stand out is how it combines hardware, software, and AI – from cars to self-driving features that are getting smarter with every mile. The company is in a never-ending innovation loop, with plans for robotaxis and humanoid robots, using the same AI brains developed for driving.
Tesla, Inc. (NASDAQ:TSLA) achieved record deliveries in Q4 2024, operating at an annualized rate of nearly 2 million vehicles, with Model Y becoming the best-selling vehicle of any kind in 2024. The company made significant investments in manufacturing, AI, and robotics during 2024, which management believes will lead to substantial future growth. A major milestone announced is the planned launch of unsupervised full self-driving as a paid service in Austin in June 2025, with plans to expand to other US cities by year-end. TSLA is a clear leader in innovation and also offers an attractive 25.36% upside according to analysts, which makes it one of the best innovative stocks to buy.
Despite some near-term challenges including battery pack production constraints and a major Model Y production transition affecting all factories in early 2025, Tesla, Inc. (NASDAQ:TSLA) remains focused on future growth initiatives, including plans to launch a more affordable model in the first half of 2025 and ambitious plans for Optimus robot production, targeting several thousand units in 2024. Management expressed strong confidence in the company’s future, suggesting that autonomous vehicles and humanoid robots could make the company worth more than the next top 5 companies combined.
