According to Evercore ISI, a strategy that merges three key success factors could potentially bring investors significant returns this January. As noted by Julian Emanuel, a senior managing director at Evercore, the month often showcases notable returns in various directions across different factors. In his report, Emanuel pointed out three principal factors that could drive exceptional performance early in the new year.
Firstly, stocks with low momentum tend to outperform their high-momentum counterparts by an average of 3.3%, about 68% of the time—although Emanuel recognizes this trend as more short-term in nature. Secondly, smaller companies generally have an edge over larger ones in January. This trend might even pick up a more sustained momentum in 2025 if pro-business policies and favorable credit conditions become clearer. Finally, stocks of companies participating in buybacks have historically outdone the market during easing cycles since 1990. They might see additional upside if the Federal Reserve continues to cut interest rates next year.
Emanuel recommends focusing on stocks that tick all three boxes: smaller size, low momentum, and high buyback. Investors should consider buying stocks that fit these criteria to kick off the new year. With this in mind, Evercore filtered the Russell 3000 index for stocks ranking in the bottom quintile for momentum, in quintiles three to five for size, and the top quintile for buybacks. Some promising names emerged from this screening.
One such stock is Cleveland-Cliffs, a steel producer that has seen a 54% decline this year. However, Goldman Sachs recently initiated coverage with a buy rating and set a 12-month price target of $16. Analyst Mike Harris points to several reasons for optimism: effective cost control, potential earnings growth from project successes at sites like Middletown and Butler, and margin expansion through a $120 million synergy post-Stelco acquisition.
Automotive company Gentherm, which fell by 26% this year, also caught Evercore’s attention. Known for manufacturing heated seating systems, the company was upgraded by JPMorgan to a neutral rating from underperform in October. Analyst Ryan Brinkman noted that despite softer industry conditions impacting earnings, Gentherm’s execution has improved, particularly after its 2022 acquisition of Alfmeier, leading to favorable revenue synergies.
Another stock on the list is Evertec, a financial tech company offering payment services across Latin America and the Caribbean. Down 17% in 2024, the stock was upgraded by Morgan Stanley last month to equal weight from underweight, with the price target adjusted to $35. Analyst James Faucette believes that Evertec’s expansion into Latin America and stabilizing trends in Puerto Rico enhance its prospects, despite potential macroeconomic and foreign exchange challenges.
Other stocks identified by Evercore include Avis Budget Group, Udemy, Progyny, and Bloomin’ Brands, suggesting a diverse array of opportunities for savvy investors.
