3 Companies to Buy on This Early Cycle Recovery

Key Points

• The phase of the current business cycle is set up to guide investors into the best setups in the basic materials sector, where three names stand out. 
• With double-digit upside present in today's list, investors have the odds placed in their favor.
• Institutional buyers have landed on the same conclusion, these names are going to see higher prices.

There comes a time in every cycle for investors to start considering where the best odds of having a green year are, and it is all rooted in the way that the broader United States economy is headed next. Today, everyone might think that the cycle is still running hot as it has since the COVID-19 pandemic, when the system was flooded with low interest rates and newly printed money that needed to make its way through businesses and consumers alike.

With this in mind, today’s cycle looks a lot different; with bond yields on the rise and higher interest rates, the Federal Reserve (the Fed) is going to restart the cycle into the early stages of spending and restocking now that prices and inflation have come slightly off in this normal phase of the cycle. Understanding that declining inflation will make it easier for businesses to get inventory on hand when interest rates eventually come down is the foundation for this new cycle.

That is where stocks in the basic materials sector come into play as a high probability area of upside for the coming months and quarters. Keeping a watchlist with names like 3M NYSE: MMM, Cleveland-Cliffs Inc. NYSE: CLF, and even Dow Inc. NYSE: DOW can tilt the odds in favor of investors looking to end the year 2025 on a green note within their portfolios, where the dynamic is tied directly to where the broader cycle might be headed next.

3M Leads the Way in Price Action

In this entire sector of recovery andow prices, one n restocking at lame stands out in terms of relative price action. 3M stock now trades at 95% of its 52-week high, and it might make a new high for the year in the short term, opening the floodgates for some big momentum investors to come in right after.

Speaking of new buyers, this is where investors can start to connect the dots for a stock like 3M. As of mid-May 2025, those from UBS Asset Management decided to boost their holdings in 3M stock by as much as 10.9%, bringing their stake to a worth up to $616.6 million today.

This transaction should give other investors a sort of “green light” to consider buying some for themselves shortly, especially with all the fundamental settings lined up to support the company’s future upside. Now, the question is where this upside might land for new investors.

Stephen Tusa, an analyst at J.P. Morgan, has an answer to that. As of mid-May 2025, this analyst decided not only to reiterate an Overweight rating for 3M but also to place a new valuation target of up to $167 per share, which would imply a new 52-week high and a net implied upside of 12.7% from its current trading price.

A Beaten Down Industry, Crazy Good Risk-to-Reward

Cleveland-Cliffs is a stock that trades at 31% of its 52-week high level, meaning that most potential downside and bearish scenarios are likely already priced into the company today. These bearish scenarios are surely aligned with the current trade tariff uncertainty.

As the new trade policy implemented by President Trump focuses on an industry like steelmaking, it would make sense to see a massive headwind in a name like Cleveland-Cliffs today. However, these prices have left little to no room for the stock to continue moving lower, despite the uncertain outcome of the tariff developments.

A way for investors to verify that this theme is alive and well is to observe the company’s short interest declining by 4.9% over the past month alone, a sign that bears are capitulating to the fact that the risk-to-reward ratio is heavily set in favor of buyers today.

Not to mention, bears might also be on the run due to Wall Street’s consensus price target of up to $12.7 per share today, which calls for a massive upside potential of 117.7% from today’s low prices. Now, investors can see the importance of lining their portfolios up with the broader economic cycle, as this typically provides the best setups.

Capital Warms Up to Dow Stock

This is another name in the sector that definitely represents limited downside for investors today, considering that Dow stock now trades at 48% of its 52-week high, also pricing in some of the worst-case scenarios that the bears might have had in mind previously.

Understanding this favorable position may have led institutional buyers to consider the stock for their portfolios moving forward, as evidenced by the $785 million worth of buying that has taken place in the current quarter alone, which builds on the $1.3 billion that also flowed into Dow stock over the past quarter.

In terms of upside, Wall Street has landed on a consensus valuation of $ 38.80 per share today, calling for up to a 40% upside as well. The markets also seem fairly confident that the stock can reach this target in the short term, considering that Dow stock is now trading at a forward price-to-earnings (P/E) ratio of up to 20.2x, which is above the group’s average of 15.5x.

What this means in terms of implications is that Dow is the one name in the group that the market is willing to overpay for, a theme often tied to confidence in future growth and upside, which is now justified by the current business and economic cycle.