Although small-cap stocks have underperformed the broader market this year, the group could see a boom in 2025 as President-elect Donald Trump takes office. Year to date, the Russell 2000 index has advanced more than 11%, while the S & P 500 has posted year-to-date gains of more than 26%. However, since Trump’s victory, investor enthusiasm around the potential easing of regulations on businesses has sent the small-cap index to new heights. The moves come as stocks more broadly have also seen massive gains in the wake of the election, with all three major averages notching multiple all-time and closing records following the outcome. With that in mind, CNBC Pro screened for small caps that may be poised to advance in the year ahead, based on the following criteria: Trade at a discount relative to the sector Trade at a discount relative to their subindustry Have upside to their price target Are up more than 5% over the past month Below are the names that made the cut, according to FactSet data as of Dec. 17. Shares of Bath & Body Works have fallen more than 9% this year. Looking to next year, analysts believe the stock can go higher, forecasting almost 20% upside potential. In fact, TD Cowen recently named the stock as one of its best ideas for 2025, calling it an “underappreciated story.” “BBWI is at an inflection point for growth after prolonged sales declines since the peak during COVID from a combination of a heightened level of newness (collaborations, adjacencies, Everyday Luxury items), candles & sanitizer category overhang starting to abate, international sales being less of a drag ( < 5% of sales), and marketing initiatives focused to drive higher awareness,” analyst Jonna Kim told clients in a note earlier this month. “We continue to see BBWI as undervalued at ~10x FY26 P/E vs. its growth and margin profile.” Beyond 2025, Kim said she is staying bullish given the potential for earnings upside and multiple expansion as the company increases its real estate footprint outside of shopping malls, grows its international presence and takes advantage of its loyalty program, among other factors. In the airline space, Alaska Airlines has soared 73% this year, and analysts think that name has roughly 16% upside potential. Alaska Airlines was named Morgan Stanley’s top airline pick for next year, pointing to the carrier’s $1.9 billion acquisition of Hawaiian Airlines back in September as a catalyst for growth. “We like the opportunity from the HA integration, which has evolved into a transformation of both Airlines to embark on a path to become the next intercontinental mainline carrier, in the mold of DAL, UAL and AAL,” Morgan Stanley analyst Ravi Shanker wrote this month. “In addition, ALK has some of the easiest comps in the group in 2025 as it laps idiosyncratic ALK ( AS1282 incident and grounding) and HA (regional disruption) issues as well as a $1 bn buyback (15% of market cap).” Analysts have also grown bullish on Academy Sports and Outdoors , which has fallen nearly 12% in 2024. The full-line sporting goods and outdoor recreation retailer has upside potential of around 17% heading into 2025. Notably, Citi, which recently initiated coverage on the name with a buy rating, thinks it has a “favorable” risk/reward profile. “After comps have been pressured over the last three years (following a large sales increase in 2020-2021), we see signs of comp pressure abating in F25 driven by recovery in several pandemic categories … and a tailwind from new stores entering the comp base,” Citi analyst Paul Lejuez wrote in a recent note. “With only 298 stores at the end of F24, ASO has significant growth runway (only 37% toward mgmt’s goal of 800 stores).” Over the next five years, the analyst projects square footage growth in the high single digits, as well as comps growing in the low single digits. That combined will spur sales growth of 7% annually during that period, he said. Others in the screen include Sprinklr , which has seen year-to-date losses of more than 25%. That stock’s upside potential moving into the new year sits at around 9%, according to consensus price targets.
