With the S&P 500 Small-Cap Stock Index (SML) underperforming the S&P 500 Large-Cap Index (SPX) by -2.49% in December as of Monday’s market close, now is the time to make some of your most important stock purchase decisions. That’s because January and the storied “January Effect” are approaching. If this seasonal tendency—the trend of stocks in general and small-caps in particular to outperform more in January than in other months—is to return in 2025, many market experts Investopedia spoke with say now’s the time to buy names like large-cap chipmaker Intel (INTC), mid-cap e-commerce marketplace operator Etsy (ETSY), and small-cap boat seller MarineMax (HZO), because they’re poised for rallies, which could start in January.

If you’ve been looking to diversify your portfolio by adding smaller capitalization companies, the good news is that you can perform your own research by using the best stock screeners and online brokerage platforms.

Top Stocks to Consider Buying Before Year-End

Here are the six best stocks to invest in right now, according to industry experts:

• Intel Corporation (INTC)
• Walgreens Boots Alliance, Inc. (WBA)
• Etsy, Inc. (ETSY)
• Boot Barn Holdings, Inc. (BOOT)
• Photronics, Inc. (PLAB)
• MarineMax, Inc. (HZO)

Small-cap stocks—which generally have market capitalizations of $250 million to $2 billion—are not the only equities worthy of consideration right now. 

“Look for stocks that were out of favor and beaten up in 2024, especially the last quarter,” said Vince Stanzione, CEO and founder of financial spread betting and derivatives trading publishing business First Information. 

Two of his ideas are actually large-cap stocks. One is Intel (INTC), which is down about 58% in 2024 through Dec. 16. The depth of its pullback makes it a contrarian play, Stanzione said. Chip-maker Intel was removed from the Dow Jones Industrial Average Index in November. 

“Another disaster is [pharmacy chain and health care provider] Walgreens Boots Alliance (WBA), which was also removed from the Dow Jones Industrials and is also down” about 57%, Stanzione said. ”Both [Intel and Walgreens Boots Alliance] could see a good bounce in January and the first quarter of 2025, as expectations are so low.”

WBA’s stock price soared on Dec. 10 on a report that the struggling drugstore chain is in talks to sell itself to Sycamore Partners.

Small-Cap Stocks to Consider Buying Now

Smaller stocks can mean mid-cap equities as well as small-cap stocks. Several mid-caps look poised for January rallies to market professionals. Etsy Inc., an e-commerce marketplace operator, whose market capitalization of $6.9 billion makes it a mid-cap stock, looks tempting to Aaliyah Kissick, personal finance expert and CEO at Financial Literacy Diaries. Etsy already appears to be pulling out of an extended slump. As of market close on Dec 16, 2024, shares are down a yearly average of about 34% over the past three years and 24% over the past 12 months, but up roughly 14% over the past three months and up about 24% over the past month.

“Etsy’s marketplace continues to thrive with unique and handcrafted products, making it a post-holiday favorite for consumers looking to spend gift cards or purchase special items in January,” Kissick said.

Kissick also likes Boot Barn Holdings (BOOT), a mid-cap specialty retailer, which has jumped 10.27% in the past month after posting a 3.92% pullback in the past three months. That puts its year to date return at a whopping 93.97%.

 “[BOOT’s] lifestyle branding resonates with its core audience and with a general population who is increasingly listening to country music and idealizing the ‘good old days,’" Kissick said.

Photronics (PLAB) is a small-cap semiconductor equipment maker, whose prospects David Materazzi, CEO of Galileo FX, likes. Shares in Photronics are still down 15.52% year to date even after rallying 13.59% in the past three months.

“The semiconductor world doesn’t move without photomasks,” Materazzi said. “And Photronics makes them. Every chip, whether for your phone, car, or AI server, starts with their precision. As global demand for semiconductors explodes, Photronics is positioned at the heart of this expansion. The supply chain starts here: own the foundation.”

Materazzi also likes MarineMax (HZO). The small-cap seller of boats and marine products has a negative total return of 17.58% year to date but is up 9.08% over the past month.

“People aren’t giving up their dreams of open water,” Materazzi said. “MarineMax dominates the recreational boating market in the U.S. A stock like this thrives when consumers splurge on lifestyle upgrades, and that’s exactly what’s happening.”

Remember, when you buy beaten-down stocks that you expect to benefit from a January rally, avoid violating the wash rule. Wait at least 30 days to buy back the same stock or substantially similar shares in the case of funds. 

How to Find Top Stocks With Potential to Rally in January

“One reason that may help cause the January Effect is tax-loss harvesting for non-retirement accounts,” Financial advisor Bob Chitrathorn, founder and vice president of Simplified Wealth Management, said. “People may sell off losses in December to offset taxable gains, and then buy them back in January, which helps boost prices.”

January Effect aside, if you want help with your own tax-loss harvesting, some robo-advisors like Wealthfront and Betterment have tools that automate that process. Similarly, top online brokers like Interactive Brokers and E*TRADE also offer tax-loss harvesting tools.

If you prefer to conduct your own search for stocks poised to jump due to the January Effect, many of the best online brokers offer suitable screens. Many standalone screens are worth a look too. Here are some financial metrics you should plug into the screen that you set up:

• Stock performance: Look for stocks with a year-to-date total return that is down 40% or more, according to Stanzione.
• Market capitalization: The January Effect supposedly helps small-cap stocks slightly more than large-caps. But large caps look safer to Stanzione. “Stay with larger cap stocks if you're going to bottom fish, as you don't want to end up picking companies that may be delisted,” Stanzione said. Share price or market cap falling below a specified level for a certain number of days can trigger delisting.
• Dividend: Stocks that pay dividends is a sign of financial health, according to Stanzione.
• Earnings per share (EPS) growth: This separates the winners from the pretenders, according to Materrazi. He said to look for earnings per share growth above 10% over the trailing 12 months.
• Return on equity: Materazzi also recommends looking for a return on equity over 15% in at least the two most recent years. This may show that the company knows how to “turn shareholder money into profits,” Materrazi said.
• Debt-to-equity ratio: According to Materazzi, a ratio below 1 shows the company is not “drowning in obligations.”
• Profit, not loss: Do not confuse a decline in share price in 2024 with an unprofitable year. It’s OK to seek companies whose shares have pulled back. But you should only seek companies that are profitable. “A pullback on a profitable company is like a clearance sale on a great product: a chance to buy more,” Materrazi said.

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