When end-of-year liquidations and profit taking take place, investors sit on newly minted cash waiting to be put to work again. Out of all the investment trends in the market and all the stocks that could outperform, which ones could pose the best opportunity from now into 2025? Well, there’s an answer to that, too, and it is found in the method traders like to use in hedge funds and investment banks.
This method is often referred to as “top-down analysis,” where investors need to make sense of the world from a top view and then end up in specific industries and stocks loaded with tailwinds and momentum for the coming months or quarters. Understanding that the new United States administration is going to be pro-business for domestic entities, focusing in the new energy sector demands, the business services sector, and transportation names will be a winning view.
From this funnel down to the selected industries, investors will find it easier to keep stocks like Exxon Mobil Co. (NYSE: XOM) and Transocean Ltd. (NYSE: RIG) in mind for new potential oil demand. Then, efficiency and high-margin services for businesses responding to more activity could cause rallies in Shopify Inc. (NYSE: SHOP) and even Alphabet Inc. (NASDAQ: GOOGL).
Finally, all the raw materials and finished products needing to be moved will likely call upon Old Dominion Freight Line Inc. (NASDAQ: ODFL) or XPO Inc. (NYSE: XPO) to get the job done.
Why Rising Business Activity Could Drive Oil Stocks to New Highs Soon
As the rise in business activity continues to affect the United States economy, oil demand will likely follow as a side effect. From manufacturing and warehousing to transportation and shipment, oil will play a crucial role in the nation's increased trends for domestic business activity.
But, not all stocks are made equal; those higher up in the value chain, such as Transocean, are set up to get paid first due to its business model. When oil demand comes back, pushing prices higher, equipment lessors like Transocean typically see the effects of new orders first, especially as capacity is so tight right now.
This is why analysts are willing to boot it higher, namely those at Susquehanna, who kept a Positive rating on the stock while also placing a price target of up to $6.50 a share for Transocean. To meet these valuations, the stock would have to rally by as much as 58.5% from where it trades today.
However, this massive upside comes with a risk, and that is the high beta of 2.7.
Investors can still gain exposure to oil with a much lower beta of 0.9 through Exxon Mobil.
The company maintains a $140 price target from Morgan Stanley, implying a 24.8% upside from current levels. Beyond that,
Exxon Mobil’s integrated business model, strong cash flows, and history of steady dividend payments may offer more stability and resilience compared to higher-volatility players in the sector.
Shopify and Alphabet Services Pave the Way for Enhanced Efficiency and Growth
More export demand needs to be created to boost the domestic economy, especially manufacturing and others, and one way to do that is through a lower dollar. When and if that currency move comes, companies will find themselves with rising inflation due to demand and a falling currency.
However, that’s good news for services like Shopify and Alphabet Inc., Google’s parent company, which can automate the hiring and customer management process cheaper and more efficiently.
Even if capacity remains tight and there isn’t enough time to move the pieces around during the demand spike, many backend processes can be automated here.
This is especially true if products start being shipped in and out of the country due to a currency swing, where Shopify can shine. Analysts at Loop Capital agree with this trend, as they boosted the stock from a Hold to a Buy as of December 2024, this time with a $140 price target as well, calling for a net rally of 24.4%.
The same can be said about Alphabet stock, which has recently made breakthroughs in other areas with Google, such as Quantum Computing.
Despite a 45.7% run over the past 12 months for this behemoth, analysts from Pivotal Research think it could push for another 16.3% run, judging from the $225 price target set as of October 2024.
Considering Alphabet’s unparalleled reach in search, advertising, and cloud services and its strides in cutting-edge fields like AI and quantum computing, investors have plenty of reasons to remain bullish.
Transportation Stocks Power the Rebound in Business Activity
After 25 months of contraction, the manufacturing PMI may be poised for a meaningful rebound, placing trucking stocks like Old Dominion and XPO at the forefront of a potential industry recovery. These factors make them an appealing option for putting some idle cash to work.
For Old Dominion, analysts at Stephens see it as an Overweight stock with a price tag of $240, which would be 17% higher than where the stock trades today. Old Dominion’s established reputation for operational efficiency, its broad service network, and improving industrial trends suggest that patient investors could be well-positioned to benefit from the next phase of the manufacturing cycle.
For XPO, the trend just keeps on going. Analysts from Citigroup called it a Buy as of November 2024 and boosted their valuations from a previous $155 a share to $179.
To prove this new valuation right, XPO stock would have to stage a rally as big as 14.3% from today’s price.
Given XPO’s established presence in the logistics and transportation sectors, along with ongoing supply chain optimizations and rising demand for efficient shipping solutions, investors have multiple tailwinds supporting the stock’s potential to deliver on these ambitious targets.
