Undiscovered Gems With Potential To Shine In January 2025

As the calendar turns to 2025, investors are on the hunt for stocks that have the potential to outperform the broader market. While many eyes are on the tech and consumer sectors, there are still undiscovered gems waiting to be found in other sectors and industries. In this article, we will explore some of these hidden gems and discuss why they have the potential to shine in the coming months.



1. Small-value stocks: These are the most undervalued stocks right now, trading 27% below Morningstar's fair value estimate. This sector could present opportunities for investors looking for bargain-priced stocks with significant upside potential. Some examples include Albemarle (ALB), Dow (DOW), and Corteva (CTV).
2. Consumer cyclical and financial services stocks: These sectors are currently overvalued, but they could be attractive if the market corrects or if there are specific companies within these sectors that are undervalued. Investors should be cautious and do thorough research before investing in these sectors. Some companies to watch include Polaris (PII), Kohl's (KSS), and Under Armour (UA).
3. Real estate and energy stocks: These sectors are currently undervalued, with real estate stocks looking 8% overvalued and energy stocks looking about 10% undervalued. Investors should consider these sectors for potential opportunities, especially if they believe the market will correct or if there are specific companies within these sectors that are undervalued. Some companies to watch include Dollar General (DG), Estee Lauder (EL), and Kraft Heinz (KHC).
4. AI-related stocks: With AI expected to be a major trend in 2025, investors should consider stocks related to AI, such as those involved in AI chip design, AI software, or AI-driven services. These stocks could have significant growth potential as AI becomes more prevalent in various industries. Some companies to watch include Alphabet (GOOGL), Micron Technology (MU), and Nvidia (NVDA).



To identify undervalued assets within these sectors or industries, investors can use various valuation metrics and compare them to the company's fundamentals, industry peers, and historical averages. Some key metrics to consider include the Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, Price-to-Cash Flow (P/CF) ratio, Dividend Yield, Free Cash Flow (FCF) Yield, and Enterprise Value (EV)/Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) ratio.

Investors should also consider macroeconomic factors when uncovering undiscovered gems in January 2025. The US stock market finished 2024 up 24% as measured by the Morningstar US Market Index. Heading into 2025, stocks look fairly valued, according to our metrics. The market was trading at a price/fair value of 1.04 at the start of the new year. With the market trading at a slight premium to our fair value estimate, positioning is increasingly important.

In conclusion, investors looking for undiscovered gems in January 2025 should consider small-value stocks, consumer cyclical and financial services stocks, real estate and energy stocks, and AI-related stocks. By using valuation metrics and considering macroeconomic factors, investors can identify undervalued assets within these sectors or industries and position themselves for potential gains in the coming months. As always, it is essential to conduct thorough research and consider multiple factors before making investment decisions.