Unlocking January Gains: 3 Key Factors for Investors to Consider

Welcome back to the Extreme Investor Network, where we sift through the noise and bring you actionable insights to supercharge your investment strategy. As we approach January, the beginning of a new year offers fresh opportunities—and according to seasoned strategists, there are three factors that could lead to outsized returns for savvy investors.

The Power of January

January is not just the first month of the year; it’s a time when the market often witnesses significant price movements. Julian Emanuel, Senior Managing Director at Evercore ISI, emphasized in a recent report that January tends to deliver some of the largest relative returns compared to other months. This unique characteristic presents a compelling opportunity for investors who know where to look.

Here’s how you can position your portfolio to potentially reap the rewards:

1. Low Momentum Stocks

Interestingly, low momentum stocks have been shown to outperform their high-momentum counterparts by an average of 3.3%—a trend that has occurred 68% of the time, albeit mostly within a short timeframe. This suggests that investors looking to capitalize on short-term inefficiencies in the market may find value in overlooked assets.

If you’re considering dipping your toes into low momentum stocks, research is paramount. Look for companies with solid fundamentals that have been temporarily mispriced due to market overselling.

2. Focus on Small-Cap Stocks

Historically, smaller stocks have a reputation for outshining larger players in January, a trend that could continue into 2025. The underlying reasons for this outperformance may include less market saturation and increased responsiveness to shifts in economic policies. As pro-business policies and favorable credit conditions become more prominent, small-cap stocks could be poised to experience a powerful lift.

Diving deeper, consider engaging with small-cap stocks that not only have potential growth prospects but also maintain robust financial health. Diversification is key here; instead of putting your eggs in one basket, aim to identify several promising small-cap stocks to sprinkle throughout your portfolio.

3. Leverage Buybacks

Companies that regularly execute stock buybacks have consistently shown resilience and outperformed their peers during easing cycles since 1990. Should the Federal Reserve decide to cut interest rates in the new year, buybacks could become even more lucrative. These strategic repurchases can signal investor confidence and lead to stock price appreciation, as the buyback reduces the total share count, effectively increasing each remaining shareholder’s value.

Investors should keep an eye on companies that have robust buyback programs. Aligning your investments with firms that prioritize shareholder return can be a wise strategy, particularly in uncertain economic climates.

Making Your Selection

In the spirit of giving you unique insights, we’ve found some stocks that align with the aforementioned strategies. Evereore screened the Russell 3000, identifying promising candidates for the upcoming January rally. Here are a few notable mentions:

• Cleveland-Cliffs (CLF): Despite being down 54% this year, Goldman Sachs just initiated coverage with a buy rating and a 12-month price target of $16, driven by promising cost-control initiatives and growth opportunities.

• Gentherm (THRM): Specializing in heated seat systems and currently down 26%, this automotive stock has seen renewed interest after JPMorgan upgraded it to neutral based on strong execution and positive revenue synergies from recent acquisitions.

• Evertec (EVTC): With a 17% decline this year, this financial technology company is focusing on payment processing in Latin America and the Caribbean. Morgan Stanley recently upgraded it, citing improved performance metrics.

• Additional Names to Consider: Keep an eye on other underrated stocks like Avis Budget Group, Udemy, Progyny, and Bloomin’ Brands that have made it onto Evercore’s radar.

Conclusion

January is shaping up to be a promising month for investors willing to take a strategic approach. By focusing on low momentum stocks, small-caps, and companies with buybacks, you can potentially position your portfolio for success. As always, do your due diligence, stay informed, and make investment choices that align with your long-term financial goals.

At Extreme Investor Network, we’re committed to helping you navigate your investing journey, so stay connected with us for more analyses, recommendations, and strategies tailored to maximize your investing potential! Happy New Year—may your investments soar!