In this article, we will look at the 12 Undervalued Cyclical Stocks to Buy Right Now.
Consumer Cyclicals: Sector Outlook 2025
On December 14, Brooke Roach, analyst at Goldman Sachs joined CNBC for an interview to discuss the firm’s outlook on consumer cyclicals for 2025. Roach mentioned that the firm is bullish on the outlook for consumer discretionary growth into 2025. She highlighted that the firm has a property consumer cash flow model, which considers various economist’s input regarding wages, healthcare, and essential expenditure cost. The model suggests that consumer spending will be strong in 2025, with discretionary cash flow growth of 5.2%. She explained that based on the research and findings the firm has a more optimistic view of consumer growth and thereby a bullish sentiment toward investment in apparel and accessories stocks in 2025.
Read Also: 12 Cheapest Stocks with Biggest Upside Potential and Top 10 Undervalued Tech Stocks to Buy According to Hedge Funds.
While talking about the themes that the firm has analyzed in 2024 and expects to continue this year, Roach mentioned that the consumer is very demanding and is seeking value. This means that they are looking for variety and innovation. Roach further elaborated that many of the top performers in the sector have been those companies that were able to provide the required innovation for the consumers. She also highlighted that heavy reliance on China as a sourcing partner has also been an issue for some of the companies. According to Roach, investors are looking for visibility into the sourcing plans, and companies that have successfully been able to present a plan for diversifying their sourcing have provided a more compelling investment case.
We have also covered consumer spending and its impact on the cyclical sector in the 8 Best Cyclical Stocks to Buy According to Hedge Funds. Here’s an excerpt from the article:
During strong economic periods, cyclical stocks tend to perform well because consumers have more disposable income to spend on luxury items, vacations, and home improvements. Conversely, during economic downturns or recessions, people often cut back on discretionary spending, leading to a decrease in demand for these goods and services.
As the Federal Reserve lowers interest rates, it is creating a favorable environment for investing in cyclical stocks. Lower interest rates reduce the cost of borrowing, which encourages both consumers and businesses to take out loans and increase their spending. This uptick in consumer spending is especially beneficial for companies that rely heavily on discretionary purchases.
On January 16, Reuters reported that the U.S. Commerce Department announced a rise in retail sales for December, driven by robust consumer demand for motor vehicles and a variety of other goods. The data highlights the economy’s resilience and supports the Federal Reserve’s cautious stance on further interest rate reductions this year. The upbeat retail figures, combined with recent labor market strength, prompted some economists to revise their economic growth forecasts for the fourth quarter closer to the strong pace seen in the July-September quarter.
With that let’s take a look at the 12 undervalued cyclical stocks to buy right now.
An overview of a manufacturing plant, representing the production of consumer products from the company.
Our Methodology
To compile the list of the 12 undervalued cyclical stocks to buy right now, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener we aggregated an initial list of cyclical stocks trading under the forward P/E of 15 with positive earnings growth expected this year. Next, we cross-checked the forward P/E for each stock from Seeking Alpha and earnings growth from Yahoo Finance. Lastly, we ranked the stocks in ascending order of the number of hedge fund holders sourced from the third quarter hedge fund database of Insider Monkey. Please note that the data was collected on January 29, 2025.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
12 Undervalued Cyclical Stocks to Buy Right Now
12. Amcor plc (NYSE:AMCR)
Forward P/E Ratio: 13.35
Earnings Growth: 0.38%
Number of Hedge Fund Holders: 18
Amcor plc (NYSE:AMCR) is a leading international packaging company that specializes in creating various types of packaging solutions for a wide range of products. The company produces packaging material for food, beverages, pharmaceuticals, medical devices, and personal care products. This includes both flexible packaging and rigid containers. It operates in more than 40 countries with approximately 218 sites worldwide.
On January 5, Anthony Pettinari, an analyst at CitiGroup upgraded the stock from Neutral to a Buy rating, increasing the price target from $11 to $12. Pettinari believes that the recent market sell-off is an opportunity for Amcor plc (NYSE:AMCR) as the company is trading close to its 52-week low. The analyst sees potential in the anticipated merger with Berry Global, as it will allow the company to reduce its cost which will be strategically beneficial amidst the ongoing volatility.
On January 23, Amcor plc (NYSE:AMCR) reported reaching a significant milestone in its planned merger with Berry Global, which is set to create a major player in consumer and healthcare packaging solutions. Both companies have filed a definitive joint proxy statement with the U.S. Securities and Exchange Commission (SEC), which is essential for moving forward with their all-stock merger agreement. The merger is anticipated to generate $650 million in synergies by the end of the third year post-merger. It is one of the 12 undervalued cyclical stocks to buy right now.
11. Levi Strauss & Co. (NYSE:LEVI)
Forward P/E Ratio: 14.8
Earnings Growth: 9.60%
Number of Hedge Fund Holders: 27
Levi Strauss & Co. (NYSE:LEVI) is a well-known apparel company that specializes in designing and selling clothing, particularly jeans. The company creates a variety of clothing items including jeans, casual wear, and accessories for men, women, and children. Their popular brands include Levi’s, Dockers, Denizen, Signature by Levi Strauss & Co. (NYSE:LEVI), and Beyond Yoga. It operates in more than 110 countries and has around 3,200 retail stores along with a presence on online platforms.
On January 22, Dana Telsey, an analyst at Telsey Advisory initiated a Buy rating on the stock with a price target of $26. The brand has been growing substantially, during the fiscal third quarter of 2024, management reported their brand grew 5% internationally, marking the best quarterly performance in two years. Levi Strauss & Co. (NYSE:LEVI) reported net revenue of $1.5 billion for the quarter, which remained flat on a reported basis due to Dockers, China, and Mexico not meeting expectations.
To tackle this the company is evaluating strategic alternatives for Dockers, including potential sale options, to focus on its core Levi’s brand and direct-to-consumer (DTC) strategies. On the other hand, while DTC sales in Mexico grew in double digits, wholesale performance was mixed due to external factors such as a cybersecurity breach affecting shipping. The company is working closely with partners to stabilize this segment. Management anticipates continued revenue growth and profitability improvements as it strengthens its core strategies and addresses underperforming areas. It is one of the undervalued cyclical stocks to buy right now.
Middle Coast Investing stated the following regarding Levi Strauss & Co. (NYSE:LEVI) in its Q4 2024 investor letter:
I’ve owned Levi-Strauss (LEVI) briefly before, and am trying again after a ye where its stock nearly doubled from where I bought it, before dropping 30%. This is a small position based on the company’s improving cash flow and balance sheet and the ubiquity of the brand. But it’s also to some degree just a better alternative to cash for one account.