Jefferies says these cheap stocks can see sharp postelection gains

Select cheap names could be poised to jump in a postelection market, according to Jefferies. The market went on a tear in the week following President-elect Donald Trump’s win at the polls, with the S & P 500 , Nasdaq Composite and Dow Jones Industrial Average touching fresh highs Monday. The rally has taken a breather since then, however. Indeed, after the 2016 and 2020 election, names with the cheapest valuations eventually performed well, while momentum plays lagged, Jefferies equity strategist Steven DeSanctis noted. This was especially the case for small-cap and midcap companies versus their larger peers, he added. To identify solid plays that could be poised for strong performance after the election, Jefferies searched for buy-rated names that were in the cheapest quintiles based on the firm’s valuation model. It then zeroed in on names with higher beta, as well as those with recent upward revisions. Higher beta names are more volatile compared to the market, but they can offer a greater reward for those willing to take the risk. “The cheapest names have lagged in November, since June 30th, and really since the start of the year. The rolling 12-month difference between Q1 and Q5 has moves back to what we would consider a pretty extreme level, thus we see cheaper being better going forward,” DeSanctis added. Here are a few of the names Jefferies turned up. Alcoa is a stock that has recently gotten cheaper but could outperform next year, particularly as the company may benefit from tightening aluminum and alumina markets, Jefferies found. The firm’s $50 price target suggests 21% potential upside for the stock, which has gained 21% this year. “Aside from our expectation of rising prices for the commodities it produces, Alcoa is also taking measures to continue its operational improvements under new mgmt,” the note read. “This stock is under-owned, in our view, and is poised to outperform in 2025.” William Oplinger, Alcoa’s CEO, recently told CNBC that he expects strong aluminum demand in the near and long term. He highlighted continued strength in the packaging industry and automotive and transportation businesses, as well as in building construction spurred by lower interest rates around the world. Looking ahead, the executive added that aluminum is crucial to the energy transition as it is used in electrical conductors, photovoltaic cells and electric vehicles. Jefferies included cruise operator Carnival in the list, saying it likes the company for several reasons, including the fact that Carnival’s bookings for next year are at an all-time high. Further, the company’s efforts to decrease its financial leverage would accelerate in a lower interest rate environment. The company’s CEO Josh Weinstein is also “an agent of change,” the firm added. Jefferies’ $26 price target on the stock suggests nearly 7% potential upside for Carnival shares from its latest close. Carnival’s stock is up 31% year to date, and it reached a fresh 52-week high on Thursday. United Airlines , financial technology company SoFi and retailer Boot Barn also made the cut. United Airlines is among the strongest names on the list, as its shares have more than doubled in 2024.