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A strategy that combines a trio of winning factors could lead investors to outsized returns in January, according to Evercore ISI. “January sees, on average, some of the largest relative returns, in one direction or another, of any month on the calendar across factors,” wrote senior managing director Julian Emanuel in a report this week. He highlighted three factors that could herald outperformance early in the new year. First, low momentum names tend to beat their high momentum peers by 3.3%, 68% of the time – though this is “short term in nature,” Emanuel said Second, smaller stocks typically outperform their larger peers in January, a trend that could catch a longer-term tailwind in 2025 amid pro-business policy clarity and accommodating credit conditions, he said. Finally, companies that offer buybacks have seen outperformance in all easing cycles since 1990, the strategist said. They could see a boost if the Federal Reserve continues cutting interest rates in the new year. Stocks that check the boxes for all three categories could see outsized gains next month, Emanuel said, recommending that investors “Buy Small Size/Low Momentum/High Buyback to Ring in the New Year.” Evercore screened the Russell 3000 for names that are in the bottom quintile for momentum, that are in quintiles three to five for size and in the top quintile for buybacks. Here are some of the names that fit the bill: One name on the list was steel producer Cleveland-Cliffs , down 54% this year. Earlier this month, Goldman Sachs initiated coverage of the name with a buy rating and a 12-month price target of $16. “We are positive on CLF for the following reasons: 1) Successful execution of self-help initiatives geared toward cost control; 2) Potential earnings growth from successful execution of value-enhancing projects at Middletown, Butler & Weirton; and 3) Margin expansion potential, which assumes successful execution of a $120mn synergy extraction from the Stelco acquisition ,” wrote analyst Mike Harris. Automotive stock Gentherm , down 26% this year, was also singled out by Evercore as a potential winner. Gentherm makes heated seat systems for cars. In late October, JPMorgan upgraded the stock to a neutral rating from underperform. “While industry conditions have tracked softer since the time of our downgrade, causing overall earnings to be less, we would argue that execution if adjusted for the softer conditions has been stronger, particularly as of late, and the company has benefitted considerably from its subsequent 2022 acquisition of Alfmeier , including via greater than expected revenue synergies stemming from go-to-market improvements and faster product innovation,” wrote JPMorgan analyst Ryan Brinkman. Down 17% in 2024, financial technology stock Evertec also made it to Evercore’s screen. Evertec, based in Puerto Rico, offers payment processing services in Latin America and the Caribbean. Last month, Morgan Stanley upgraded shares to equal weight from underweight. Analyst James Faucette accompanied the move by raising his price target to $35 from $33. “Upgrading EVTC to EW as we think the setup has improved given diversification into LatAm & stabilizing Puerto Rico trends,” he wrote. “Trading at a 4x discount to its 5-year avg., we think EVTC’s current valuation is fair and prices in potential downside from macro/FX headwinds & Sinqia integration pressure.” Other names on Evercore ISI’s list included Avis Budget Group , Udemy , Progyny and Bloomin’ Brands .
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