Hidden Gems: 3 Value Stocks to Watch for Strong 2025 Returns

Key Points

• Value stocks present a compelling opportunity for investors in 2025, according to Goldman Sachs.
• Three value plays for the new year include Conduent, Commerical Vehicle Group, and Imperial Petroleum, all of which stand out for different reasons.
• CNDT has successfully shed many of its less-successful components and is newly streamlined; CVGI presents a value play based in part on its share price dip; IMPP noted a strong third quarter despite industry-wide hurdles.

MarketBeat reported late in 2024 on an opportunity for investors to capitalize on ultra-low spreads between value and growth stocks, with Goldman Sachs' chief global equity strategist expecting risk-adjusted return picks—those with mostly room to grow—as a particularly strong option for 2025. Value stocks offer investors strong upside potential while also potentially minimizing downside risk as a result of their relatively low price point.

There are a large number of companies that investors might consider for a value play. Three in particular—Conduent Inc. NASDAQ: CNDT, Commercial Vehicle Group Inc. NASDAQ: CVGI, and Imperial Petroleum Inc. NASDAQ: IMPP—stand out in the new year for their potential to provide strong returns. Notably, each of these stocks might be categorized as a value bet for different reasons.

Conduent: Balance Sheet Improvements, Streamlining Operations

Conduent is a business process outsourcing company with clients in commercial, transportation, and government segments. As of January 3, 2025, it is a small-cap penny stock with a market capitalization of roughly $651 million and a share price of $4.07.

Much of Conduent's business centers on transaction processing and customer experience management. Throughout most of 2024, it engaged in an ambitious divestiture program to strengthen its balance sheet. This program was largely successful, as the company generated some $780 million in post-tax proceeds from sales of its Casualty Claims Solutions business and other entities. Conduent has used this influx of cash wisely by prepaying debt and buying back shares.

With a more simplified structure, Conduent is poised to be able to continue to strengthen its commercial segment, which has recently outperformed the company's government business. A new partnership with Bank of New York Mellon Corp. NYSE: BK can also potentially boost commercial business.

Conduent's P/S ratio is 0.2, marking it as a strong value candidate. The broader business process outsourcing industry is expected to grow thanks to strong demand for digital talent and an increase in outsourcing in some industries. The company is thus primed for organic growth, although the risk of AI as a disruptive factor for the industry remains in play.

Commercial Vehicle Group: Efforts to Streamline

Commercial Vehicle Group, a maker of systems, components, and assemblies for a variety of automakers and industrial firms, represents a value opportunity for investors looking to buy a dip. Shares of CVGI have fallen by about two-thirds in the year leading to January 3, 2025, amid broader challenges to the heavy machinery industry and disappointing earnings results.

Caution is warranted in the case of CVGI shares, particularly given that the company missed analyst expectations on revenue as well as full-year revenue guidance in its latest earnings report. However, Commercial Vehicle Group President and CEO James Ray, who has led the company for roughly a year, is working to reduce costs and streamline operations, partly through divestitures. In November, for example, the company sold the assets of warehouse automation business First Source Electronics to Woodson Equity for an undisclosed sum.

Analysts at Noble Financial remain optimistic about Commercial Vehicle Group's prospects given these efforts, maintaining a Buy rating as of late December 2024 with a price target of $8.00, which is more than triple current levels.

Imperial Petroleum: Strong Performance Despite Obstacles

Imperial Petroleum is a micro-cap penny stock operating in the oil and petroleum transportation business. While the company enjoys strong value markers, including a P/S ratio of 0.7, its appeal to investors may lie predominantly in its latest earnings report.

In the third quarter of 2024, this up-and-coming oil transport company noted $11 million in profit and a 142% year-over-year increase in adjusted net income. Notably, the company carried zero debt as of the end of the third quarter and had roughly $200 million in cash. It also has the capacity to generate strong cash flow for its size, with $68 million in operating cash flow for the first three quarters of the year.

All of these are positive signs, but they are even more noteworthy given the considerable barriers Imperial faced during the third quarter. These include low spot rates industrywide, declining Chinese oil imports, lower crude exports from the Middle East, and lower-than-usual operational utilization due to some minor incidents involving Imperial's fleet. All of this aside, it's likely that the company will perform even more strongly when it no longer faces these hurdles.