Now that the first quarter of the new year is underway, investors might look for the best potential plays in the stock market. Having the confidence and financial momentum to start the year can give portfolios the room—and safety—to look for exposure to the more aggressive growth plays later in the year. But in order to get there, this strong start to the year needs to be locked in.
Therefore, in order to get portfolios in that position, today’s list will be paramount for investors to consider for the first quarter. However, these are not the most popular names out there, and that is precisely where the underlying upside will come from, as the fundamental setups and risk-to-reward setups make these stocks some of the best picks in the transportation and industrial sectors.
Once investors actually connect the dots in the big picture for shares of Knight-Swift Transportation (NYSE:), the real estate investment trust (REIT) connection to the sector through Prologis (NYSE:), and even the clean energy player in the energy sector in NextEra Energy (NYSE:), the entire fundamental thesis behind today’s economy will lead them directly to the double-digit upside inside this list.
1. Business Activity Boosts Lead to Knight-Swift Stock
Now that the economy is starting to shift into a manufacturing-friendly environment, with the manufacturing PMI already showing investors a sudden surge in new orders and positive commentary from different industries, the view has turned positive for the industries that support domestic business activity.
For example, transportation, as raw materials and finished goods are being transported, will create a significant demand tailwind for these operators to potentially see stronger profits in the coming months. If price action is any indication, investors already have a pillar of strength to account for in favor of Knight-Swift stock today.
As it trades at 91% of its 52-week high, investors can safely assume that the market favors this stock for the reasons already mentioned. This might also explain why some Wall Street analysts have decided to reiterate their optimism in Knight-Swift stock today.
Those at Susquehanna have placed a positive rating on this stock, this time valuing it as high as $67 a share to call for up to 21.4% upside from where the stock trades today, not to mention a new 52-week high. This also explains why allocators from Principal Financial Group also decided to boot their holdings by 21.5% as of January 2025 for a net position of $35.2 million today.
2. Prologis Stock: Next in Line
While Knight-Swift will handle the transportation responsibilities for this surge in business activity, Prologis will serve as the intermediary, focusing on logistics planning and storage networks. This is why the broader market is also willing to pay a price-to-earnings (P/E) ratio of 34.3x today, a premium over the finance sector’s average 24.8x valuation.
Some will call this an expensive valuation and, therefore, unattractive. Others will realize that the market is always willing to pay a premium for stocks it expects to outperform its peers in the coming months. Knowing that the value chain, which already favors Knight-Swift, will fall into Prologis stock, new buyers have come around recently.
As of January 2025, a new institutional allocation from Sarasin & Partners boosted the group’s holdings by 0.3%. While this may not sound like much on a percentage basis, it brought the net position to a high of $99 million today and gave investors another bullish factor to consider in their decision-making.
Another benefit of owning this stock is the strong and stable cash flow it generates, which allows it to pay shareholders up to $3.84 a share in dividends, translating to an annualized dividend yield of up to 3.3% today.
3. Oil Price Rallies Call for Clean Energy
Low oil prices give very little incentive for consumers and businesses alike to look for alternative energy sources, which is why NextEra stock has traded down to 80% of its 52-week high. However, as business activity surges, demand for oil is also expected to rise under the most likely scenarios.
This is a view shared by analysts at Goldman Sachs inside their 2025 macro outlook report, as well as hedge funds who have accumulated oil futures inventory lately. Connecting the dots in this last leg of the economic tailwind led Scotiabank analysts to reiterate a sector outperform rating as of December 2024.
Not only that, the reiteration came with a valuation of up to $96 a share for Prologis stock, which would imply a net upside potential of as much as 35.5% from where the stock sits today. Understanding and accepting this potential upside led buyers from Bartlett & Co. to accumulate up to $55.9 million worth of NextEra socks to start the year.
These factors give investors a chance to get their first quarter started on the right foot, a factor that institutions have already gotten behind on.
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