Jefferies has outsized conviction that five new stocks in its “Franchise Picks” list could outperform in the new year, including industrial plays Caterpillar and Flowserve . A disappointing Federal Reserve rate-cut outlook has sent stocks reeling in the past few days, with all three major indexes set to end the week in the negative. On Thursday, the Dow Jones Industrial Average narrowly ended a 10-day losing streak, its longest since 1974. Despite these downward moves, Jefferies still sees gains ahead in the new year for a select group of stocks. In a Friday note, the investment firm released its updated “Franchise Picks” list, which represents its top ideas heading into 2025. “Jefferies’ Franchise Picks are amongst our highest-conviction, Buy-rated stocks across US Research,” the firm said. “These 22 top ideas are underpinned by differentiated analysis, supported by catalysts and sit at valuation levels that suggest upside.” Below are some of the stocks from Jefferies’ updated list, including the five new additions: Construction and mining equipment manufacturer Caterpillar, up nearly 25% this year, is a new entry on the list. Analyst Stephen Volkmann’s $475 price target implies shares could rise about 32% from their Thursday close. “Levered to both infrastructure and commodity industries, which have seen severe underinvestment over the past decade+. As a result, we see the potential for peak sales in the next cycle (which may already [be] underway) to reach $70B,” Volkmann wrote. Machinery supplier Flowserve was another new addition to the list. Analyst Saree Boroditsky cited growing power demand, after decades of stagnation, as a catalyst for the stock. “We believe FLS is well-positioned to drive mid-teens earnings growth through ’27, supported by favorable end markets and margin expansion,” the analyst wrote. Boroditsky’s price target of $80 is approximately 38% higher than where shares closed on Thursday. Flowserve is up approximately 42% so far in 2024. Jefferies also highlighted EPAM Systems as a new top pick. The software engineering stock has tumbled 16% in 2024, but analyst Surinder Thind’s $305 price target implies shares could rise 24% from Thursday’s close. “After an unusually extended down cycle for IT services, recent data suggests clients are planning to increase discretionary spend in ’25 as they seek to start or push forward growth-oriented projects as a result of increasing macro confidence, mounting tech debt, the emergence of new technologies such as Gen-AI and fear of competitors developing a first mover advantage,” Thind wrote. The company is also adding headcount, the analyst noted. Other new names in Jefferies’ list of picks include aerospace stock TransDigm Group and health-care real estate investment trust Ventas . Returning members include “Magnificent Seven” giant Microsoft and sports-betting platform DraftKings .
