Cyclical Rebound or False Start for These 3 Stocks?

Key Points

• Three cyclical stocks show a potential bottoming and upcoming expansion in valuations and earnings, driven by fundamental turnarounds.
• Wall Street analysts see more upside left in this list for the coming months, as EPS expansion is set to take stage.
• The theme is similar in these three industries, and it's all focused on financial growth.

There is a lot of noise in the stock market, distracting investors from what really matters: the fundamentals. There is no use in trying to follow the sentiment and optimism when the S&P 500 index is trading near its all-time high levels, since this is typically where underlying drivers become more sensitive and vital, making it harder for portfolios to perform properly.

With this in mind, a potential bullish cycle is approaching in a couple of areas of the United States economy. These areas, such as the industrial sector and transportation sector, are known to be more cyclical in the market; therefore, they also serve as a guide for the rest of the economy and the broader market moving forward.

This is where keeping a basket that tracks stocks like United Airlines Inc. NASDAQ: UAL, Alcoa NYSE: AA, and 3M Co. NYSE: MMM can be a great way for portfolios to keep all the benefits that come with investing in stocks.

As investors will soon discover, this basket offers the best of both worlds in terms of upside and stability. This time, the expectation of lower interest rates by the end of the year drives forecasts higher for these names.

3M’s Momentum Is Set to Continue

This industrial conglomerate rarely delivers a double-digit percentage move, but that is precisely what 3M shareholders enjoyed over the past quarter, as the company rallied by up to 22% during this period.

Even though this move brought 3M stock to a new 52-week high, investors still see a higher ceiling ahead.

One reason to believe this is that earnings per share (EPS) have been trending upward recently. Over the past 12 months, EPS have trended lower, until last quarter came about. While Wall Street analysts expected to see $1.77 in EPS, 3M managed to surprise everyone with a $1.88 beat.

This recent beat also marked the bottom of the earnings downtrend, potentially initiating the beginning of a new uptrend for 3M in the future.

Investors will soon find out whether this momentum continues, as 3M is set to report its Q2 earnings on July 18. Analysts expect EPS to continue improving, and another beat could confirm the shift in trajectory and justify the stock’s recent gains.

Expanding EPS could mean that the industrial sector is poised to follow. This makes sense given that the Industrial Select Sector SPDR Fund NYSEARCA: XLI has outperformed the broader S&P 500 over the past quarter.

The market is willing to pay up for 3M for this very reason. By trading at a price-to-earnings (P/E) ratio of 19.9x today, 3M stands significantly higher than peers in the industrial space with an average valuation of 7.2x.

Downside Is Priced for Alcoa Stock

When it comes to price action, 3M surely takes the lead in this list, while Alcoa takes the last place, trading at only 60% of its 52-week high levels. This potentially means that the market has factored in all perceived risks for the metals industry amid ongoing tariff negotiations.

Since this low price has no more downside to bake in potentially, investors are now left with an asymmetric setup that favors the bulls over anyone else.

With this setup available to everyone, it shouldn’t come as a surprise to see some Wall Street analysts express their optimism in Alcoa stock as a way to enhance their reputations and careers.

One example is Alexander Hacking from Citigroup, who boosted his rating in Alcoa stock to a Buy coupled with a valuation target of up to $42 per share, which implies the stock can start to flirt with its 52-week highs soon, as well as potentially deliver a rally of up to 47% from where it trades today in order to meet this analyst call.

Like with 3M, it seems that the bottoming of the EPS cycle might be in for Alcoa as well. Alcoa issued its Q2 2025 earnings on July 16, reporting an EPS of $0.39, beating analysts’ consensus estimate of $0.29 by $0.10. Quarterly revenue rose 3.9% year-over-year to $3.02 billion, also topping the consensus estimate of $2.96 billion. Wall Street analysts now expect the company to report up to $0.57 in EPS in the coming quarters—a significant 46% increase that aligns with the upside potential outlined by Citigroup’s $42 price target.

United Airlines Will Catch a New Bid

With peers in the airline industry starting to report higher guidance and better financials, investors can assume that the cycle is, in fact, coming to a bottom, with the next phase of expansion being the likely outcome next.

This explains why United Airlines stock has rallied up to 33.4% over the past quarter, with 20% delivered in the past month alone. This bullish price action, occurring in the midst of such an uncertain economic environment, is not commonplace, and it should signal to investors that there is much more brewing behind the scenes for this airline.

Adding to the momentum, United Airlines issued Q2 2025 earnings on July 16, reporting EPS of $3.87, beating the consensus estimate of $3.81 by $0.06. This earnings beat reinforces the broader trend of improving financials across the airline industry.

With momentum behind the stock now and financials beginning to expand in the overall industry, investors shouldn’t be surprised to see a consensus price target of $104.5 per share in United Airlines stock. This implies that an additional 18.1% of upside can be delivered on top of the already stellar quarter shareholders have had.

However, there is one major catalyst still in the mix that could bring about an EPS surprise next quarter, and that is consistently low oil prices, which aid the bottom-line margins seen in the airlines overall, making the upside in United Airlines not yet priced in.