3 Companies to Buy on This Early Cycle Recovery

As the economic cycle shifts towards early-stage spending and restocking, basic materials stocks like 3M (MMM), Cleveland-Cliffs (CLF), and Dow Inc. (DOW) present potential upside for investors aiming for positive returns in 2025. 3M shows strong price action with UBS Asset Management increasing its stake, while Cleveland-Cliffs' low trading level relative to its 52-week high and declining short interest suggest limited downside despite trade tariff uncertainties; Dow Inc. has seen significant institutional buying, with the market willing to pay a premium for its future growth.

Analysis

The U.S. economy is exhibiting signals consistent with a transition towards an early-stage spending and restocking cycle, a phase potentially fueled by moderating inflation and the anticipation of eventual interest rate reductions by the Federal Reserve. This macroeconomic environment suggests a favorable outlook for the basic materials sector in the upcoming months and quarters. Within this sector, 3M (MMM) is demonstrating robust price momentum, trading at $146.36, which is 95% of its 52-week high. This strength is underscored by UBS Asset Management's recent 10.9% increase in its holdings to $616.6 million and a J.P. Morgan price target of $167, implying a 12.7% upside. Cleveland-Cliffs (CLF), currently priced at $7.22 (31% of its 52-week high), appears to have significant bearish sentiment, including trade tariff uncertainties, already factored into its valuation; a 4.9% decline in short interest over the past month and a 12-month average analyst price target of $12.74 (representing a 76.54% potential upside) suggest a favorable risk-reward profile. Dow Inc. (DOW), trading at $27.20 (48% of its 52-week high), has attracted considerable institutional capital, with $785 million in net buying in the current quarter building upon $1.3 billion in the previous quarter. The stock commands a forward price-to-earnings ratio of 20.2x, notably above the sector average of 15.5x, indicating market confidence in its growth prospects towards an average analyst target of $38.86, implying a 42.85% upside.

Key Decisions for Investors

• Investors should consider increasing strategic allocations to the basic materials sector to potentially capitalize on the anticipated economic shift towards a spending and restocking phase, particularly with a view towards performance leading into 2025.
• For 3M (MMM), which exhibits strong price action near its 52-week high and benefits from significant institutional support such as UBS Asset Management's increased stake and a J.P. Morgan target of $167, positions could be considered in anticipation of further momentum and a potential breakout.
• Cleveland-Cliffs (CLF) merits evaluation as a deep value or turnaround opportunity, given its current trading level at 31% of its 52-week high and a substantial 76.54% upside to the $12.74 average analyst target; however, investors must diligently monitor ongoing trade policy developments, even as declining short interest signals a potential shift in sentiment.
• Dow Inc. (DOW) presents a case for investment based on its growth prospects, as evidenced by $785 million in recent institutional net buying and a premium forward P/E of 20.2x, suggesting market conviction in its path to the $38.86 consensus analyst target, especially if supported by favorable cyclical tailwinds.