Signs of economic slowdown are emerging despite record-highs on major US indexes.
Even so, there is growing optimism about a possible rate reduction from the Federal Reserve that could give the US economy a new boost.
Morgan Stanley is convinced that this market environment favors certain small and midcap stocks, which are often overlooked but have the potential to make outsized gains.
Three stocks in particular stand out: Wayfair (market cap under $20 billion) and Cinemark and Lionsgate Studio. They have upside potentials ranging between 20% and 50%.
Wayfair Inc (NYSE: W)
Wayfair is a good bet, thanks to the improving sentiment in housing and anticipation of monetary ease.
Morgan Stanley considers online furniture retailers as one of the “most spring-loaded assets on the Internet,” particularly as the home furnishings market stabilizes.
Simeon Gutman, an analyst at Simeon Gutman, believes that Q2 was a pivotal quarter and validated his upgrade in January. According to the firm’s bull-case price target of $150, Wayfair shares could rise by 44% from their current level.
Wayfair’s marketplace model protects it against rising costs of input, unlike other retailers.
Wayfair is a strong pick in Q4 with W shares up more than 100% this year to date and analyst ratings split between Buy and Hold.
Cinemark Holdings Inc. (NYSE: CNK).
Morgan Stanley says that although Cinemark’s stock is down this year, the story surrounding movie theaters has been overly pessimistic. Morgan Stanley’s price target of $35 suggests that the stock could rise by 24% from its current level.
Benjamin Swinburne, an analyst at the University of California-Berkeley (UCB), believes that the death of movie theaters has been exaggerated. He cites self-help programs and the strong film schedule for 2026.
The recovery thesis is further fueled by the recent success of “The Conjuring: last Rites” which was Cinemark’s 2nd-largest horror debut ever.
Cinemark’s shares may surprise and reward investors who are contrarians in the coming months, as box office revenue is expected to reach pre-pandemic level next year.
CNK’s dividend yield is 1.13%, making it a more appealing stock to buy for the last quarter of 2025.
Lionsgate Studios Corp (NYSE: LION)
Lionsgate Studios is an independent media giant, having recently split off from Starz.
Morgan Stanley believes that the company is well positioned to flourish in an entertainment industry undergoing consolidation. In Q4, the studio reported a profit of $21.9 million, reversing its loss from last year. Motion picture revenues also increased by 28%.
The theatrical release of upcoming films like Stephen King’s “The Long Walk,” a Michael Jackson biography, and a prequel to the Hunger Games will bolster this pipeline.
Lionsgate Studios Corp, a third-party provider of premium content, plans to increase its TV scripted show deliveries by doubling next year.
Wall Street is still overwhelmingly bullish about LION, with an “overweight rating” and a median target price of $8.61. This suggests that the shares could rise up to 18% from their current level.
The post 3 Undervalued Stocks poised to Rally in 2025’s Final Quarter may change as new information becomes available
