Sometimes the most counterintuitive ideas work best in the stock market. A little-known market anomaly called the “turn-of-the-year” effect suggests that the start of a new year can be marked by underperformance from prior year winners and outperformance by losing stocks. Documented by Jegadeesh and Titman in their seminal 1993 paper, this riff on momentum trading can help investors secure quick profits at the start of the year.

To further enhance this phenomenon, I have identified three stocks that have underperformed the broad market this year, but also boast top Zacks Ranks, strong sales growth and robust business fundamentals. This should provide an opportunity to limit downside risk and increase upside return potential.

While momentum traders are normally looking for market outperformers, here we are looking at XPEL (XPEL), ACM Research (ACMR) and Monday.com (MNDY), which have all underperformed. If the “turn-of-the-year” effect is strong this year, these stocks may very well start 2025 with a rally. Alternatively, if the effect is weak, these stocks still enjoy other bullish catalysts, which should improve the odds of a near-term rally.

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XPEL: A High-Growth Compounder Stock at a Discount

XPEL is a leader in automotive protection products, best known for its paint protection films and window tinting. Despite being down 25% this year, XPEL has been a remarkable long-term compounder, delivering an impressive 40% annualized return since 2019.

The stock is currently trading at a historically discounted valuation of 23.2x forward earnings compared to its five-year median of 37.5x, making it an attractive buy for value-oriented investors. With a Zacks Rank #2 (Buy), strong fundamentals, and a track record of resilience, XPEL is poised for a potential rebound in 2025.

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Monday.com: Growth Stock in SAAS Space

Monday.com is a leading work management platform helping teams streamline workflows and improve productivity. While it has performed relatively well this year, it still trails the broader market, offering an entry point for growth investors.

Sporting a Zacks Rank #1 (Strong Buy), the stock has seen significant upward revisions in earnings estimates, consistent earnings beats across the last four quarters, and projected EPS growth of 42.5% annually over the next three to five years. Developments in the AI industry have raised concerns among investors about the potential impact of automation on software companies, but these fears appear to be overblown, particularly for well-established platforms like monday.com.

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ACM Research: A Turnaround Play in Semiconductors

ACM Research provides advanced cleaning solutions for the semiconductor industry. While based in the US, the company generates most of its revenue in China, leaving it vulnerable to geopolitical tensions.

Despite these challenges, the stock’s forward P/E of 14x is significantly below its five-year median of 28.1x, reflecting a historically discounted valuation. With a Zacks Rank #1 (Strong Buy), ACMR is actively diversifying its geographical sales base to reduce risk and capitalize on growth opportunities. Expectations are currently at their lowest, pricing in negative trade developments, which could set the stage for a sharp rebound if conditions improve.

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Should Investors Buy Shares in ACMR, MNDY and XPEL?

While each of these stocks faced challenges in 2024, their strong fundamentals, top Zacks Ranks, and compelling growth prospects position them as potential winners for early 2025. Whether driven by the "turn-of-the-year" effect or their own bullish catalysts, XPEL, ACM Research, and monday.com offer a mix of value, innovation, and resilience for investors seeking opportunities in the new year.

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