Top quant-rated Cyclical Stocks, as group is expected to outperform in 2025

U.S. cyclicals should outperform in 2025, according to BofA Securities analysts.

We are in a post-peak inflation of 9% in 2022 but in a higher rate regime than the 2010s, and today’s environment looks a lot like the late 90s to early 2000s, as just a few large expensive stocks make up a third of the S&P 500 (SP500).

Savita Subramanian, head of U.S. equity and quantitative strategy at BofA, said she sees more opportunities in the average stock than in the index. “We like companies with healthy cash return prospects and a tether to the U.S. economy – large cap value stocks.”

She forecasts $275 in 2025 EPS, up 13% year-over-year compared to 10% expected in 2024.

“Volume is the story that replaces the last two years mega-cap tech story,” wrote Thomas Thornton, head of Global Research Product Marketing, in a note.

In addition, recovery in manufacturing should drive a 6% pickup in sales growth, driving operational leverage in cyclical sectors. Also, “2026 will likely be a year of normalization with profits growth closing in on the long-term average of 7%.”

De-regulation is also expected to benefit cyclicals. Thornton writes that regulations after 2008 prevented financials’ (XLF) multiples from expanding and stalled the public banks’ loan growth.

Also, analysts believe that the de-stocking cycle has come to an end.

“Semis (SMH), (SOXX) and autos saw the biggest decline in inventories year-over-year, while pharma (PJP), (XPH), (PPH), biotech (XBI), (BBH), and life sciences and consumer durables and apparel saw the biggest increase,” Thornton said.

After prior destocking troughs, such as in 2003, 2001, and 2022, S&P 500 (SP500) earnings grew 6%, 44%, and 35% (respectively) in the subsequent 12 months.

Two other factors influencing analysts being bullish cyclicals are the election uncertainty being over, and the S&P 500 (SP500) capex cycle inflecting higher, up 17% year-over-year in the third quarter – the strongest growth rate since the third quarter of 2022.

“More importantly, the S&P 500 ex-Mag. 7 and Tech started to see accelerating capex growth for the first time since 3Q22, growing at 7% YoY (vs. +2% YoY),” Thornton said. “Accelerating capex growth from non-Tech sectors suggests fundamental strength potentially broadening out to more picks and shovels from AI investments.”

Lastly, analysts expect S&P 500 (SP500) earnings to broaden out. EPS growth in the second half of next year is expected to see a record earnings breadth of 96%.

BofA analysts are overweight financials (XLF), materials (XLB), real estate (XLRE), utilities (XLU), and consumer discretionary (XLY).

Top-rated cyclicals, ranked by Seeking Alpha quant metrics:

• Kingstone Companies Inc. (KINS) – Quant rating: 4.99
• Power Solutions International (OTCPK:PSIX) – Quant rating: 4.99
• Dave Inc. (DAVE) – Quant rating: 4.99
• Alliance Entertainment Holding (AENT) – Quant rating: 4.99
• OppFi Inc. (OPFI) – Quant rating: 4.98
• Argan Inc. (AGX) – Quant rating: 4.98
• Amazon.com (AMZN) – Quant rating: 4.98
• Carnival Corp. (CCL) – Quant rating: 4.97
• United Airlines Holdings (UAL) – Quant rating: 4.96
• Finance of America Companies (FOA) – Quant rating: 4.96
• Flotek Industries (FTK) – Quant rating: 4.95
• Brinker International (EAT) – Quant rating: 4.95
• Synchrony Financial (SYF) – Quant rating: 4.95
• Wells Fargo & Co. (WFC) – Quant rating: 4.94
• SkyWest (SKYW) – Quant rating: 4.93
• Century Aluminum Co. (CENX) – Quant rating: 4.92
• Norwegian Cruise Line Holdings (NCLH) – Quant rating: 4.92
• Capital One Financial Corp. (COF) – Quant rating: 4.91
• The Progressive Corp. (PGR) – Quant rating: 4.90
• PayPal Holdings (PYPL) – Quant rating: 4.90