As we approach the new year, the U.S. stock market is experiencing significant turbulence, largely influenced by the Federal Reserve’s disappointing outlook on interest rate cuts. Recently, all three major indexes have taken a hit, culminating in the Dow Jones Industrial Average ending a 10-day losing streak—the longest of its kind since 1974. Investors are grappling with uncertainty as stock valuations shift under the weight of macroeconomic concerns. However, amidst this backdrop of volatility, Jefferies, a leading investment bank, has expressed confidence in its latest selection of stocks poised for growth in the upcoming year.
In a recent note to investors, Jefferies unveiled its “Franchise Picks” list, which showcases 22 high-conviction stocks that the firm believes are undervalued and set for gains as we transition into 2025. These stocks represent a carefully curated selection based on unique analytical insights and a promising array of catalysts that could drive their valuations upward. Jefferies stated that the stocks on this list are rated as “Buy” and stand out due to their strong fundamentals and favorable market conditions, suggesting that they could outperform their peers significantly in the coming months.
Among the notable new entrants to this list are renowned names like Caterpillar and Flowserve, which operate in the industrial sector and are expected to benefit from a resurgence in infrastructure spending and energy demand.
Caterpillar has been ranked highly by Jefferies for good reason. The company, which manufactures construction and mining equipment, is lauded for its potential to capitalize on increased infrastructure investments after a decade of underfunding in this crucial area. Analyst Stephen Volkmann projects that shares of Caterpillar could see an impressive rise of approximately 32%, with a price target set at $475. This optimism is grounded in expectations that sales could peak in the next market cycle, potentially reaching $70 billion. As the economy gears up for recovery, Caterpillar stands to gain significantly from increasing demand for heavy machinery.
Another compelling choice on Jefferies’ list is Flowserve, a supplier of industrial pumps and valves, which has seen its shares jump by around 42% in 2024. Analyst Saree Boroditsky highlights the resurgence of power demand as a driving force behind Flowserve’s growth trajectory. With a target of $80 per share—a potential upside of 38%—Flowserve is positioned to achieve mid-teens earnings growth through 2027. Boroditsky’s analysis emphasizes the company’s favorable end markets and healthy margin expansion, which further solidify its standing in the eyes of investors.
In the technology sector, EPAM Systems is adding to Jefferies’ confidence. Despite facing a downturn of 16% in 2024, analyst Surinder Thind foresees a rebound fueled by increased discretionary spending in IT services as clients aim to mitigate technical debts and embrace emerging technologies, notably Artificial Intelligence. Thind has set a price target of $305 for EPAM, suggesting a recovery potential of roughly 24%. This outlook illustrates the pent-up demand from businesses eager to innovate and enhance their competitiveness in an evolving landscape.
Jefferies’ new picks also include aerospace company TransDigm Group and Ventas, a healthcare real estate investment trust, showcasing a diverse range of sectors under consideration. Not to be overlooked, returning stalwarts of the list such as tech giant Microsoft and entertainment platform DraftKings reflect a blend of stability and growth potential that investors typically seek.
As 2025 approaches, investors are understandably cautious, but Jefferies’ Franchise Picks serve as a strategic guide through uncertain times. By focusing on companies with strong fundamentals, favorable market catalysts, and promising growth prospects, investors may find valuable opportunities amid the market’s current upheaval. These insights highlight the importance of rigorous analysis and foresight as we embark on a new year in the financial markets.