Industrial plays for the second half, and why Netflix is primed to go even higher

Financial experts are identifying investment opportunities beyond the 'Magnificent Seven' and in specific industrial sectors for the second half of 2025. G Squared's Victoria Greene sees continued upside for Netflix, citing streaming's dominance and significant future ad revenue growth despite its high valuation. UBS's Amit Mehrotra favors Johnson Controls due to its strong tie to the energy efficiency trade and commercial HVAC demand, also highlighting 3M and Honeywell. Additionally, Regions Asset Management's Alan McKnight is bullish on midcap companies, anticipating a catch-up trade driven by their earnings growth parity with large caps but a valuation disparity (16x vs. 23x forward earnings) that presents an opportunity.

Analysis

Investment sentiment for the second half of 2025 is shifting towards opportunities outside of the mega-cap tech cohort, with specific focus on industrials and select technology names. For Netflix (NFLX), despite a 50% gain in the first half and a high forward P/E ratio of 50, a bullish case is being made based on the structural decline of linear television and significant growth potential in advertising revenue, which is projected to ramp towards $10 billion from an initial $3 billion. In the industrials sector, which was the top performer in H1 2025, Johnson Controls (JCI) is highlighted as a top pick due to its direct exposure to the energy efficiency trend. With 50% of its business in commercial HVAC, the company is poised to benefit from power-intensive demands like data centers and rising energy prices, supported by a consensus overweight rating and a $105 price target. A broader market theme is emerging in mid-caps, where a significant valuation disparity exists; the S&P Midcap 400 trades at approximately 16 times forward earnings compared to the S&P 500's 23 times, despite nearly equivalent earnings growth projections, suggesting a potential re-rating for quality mid-cap firms.

Key Decisions for Investors

• Investors should evaluate Netflix based on its long-term ad revenue potential, which is projected to grow from a small base towards $10 billion, rather than focusing solely on its current high forward P/E of 50.
• Consider exposure to Johnson Controls (JCI) as a direct play on the energy efficiency and data center build-out themes, as its commercial HVAC business is poised for growth in a high-power-cost environment.
• It may be prudent to screen for mid-cap companies with solid balance sheets, as the segment's valuation at 16x forward earnings presents a significant discount to large-caps at 23x despite similar growth outlooks.
• Given the outperformance of industrials in H1, consider diversifying away from mega-cap tech concentration by rotating into select industrials like JCI, 3M, and Honeywell, or undervalued mid-caps to capture a potential catch-up trade.