There is a recurring pattern in Wall Street history known as the “January effect,” in which small-cap stocks outperform their large-cap brethren, and the lower-capitalization and lower-quality names are often the biggest winners. Steven DeSanctis, the Jefferies outstanding equity strategist, feels that, given how awful 2022 has been, not only could the January effect be in play, but it could rear its head in a big way. That could be particularly positive for a group of stocks that were pulverized this year.
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DeSanctis feels that the lower-cap stocks are cheap across the board, and really only need trading flows to pick up for the stocks to get a huge tailwind. He noted this in a recent research report:

We see a good possibility based on when the first 11-months have been this bad, December is weaker than normal, but January is much better. We also found that when a majority of stocks are in the red for the year, the next January’s return is also above average with lower market cap performing best. We wanted to find stocks that could get a bounce once tax-loss selling ended, but are not going to be a one-hit wonder like The Knack. We looked for names that are Buy-rated by our analysts, rank well on our Quality metrics, but have significantly underperformed the universe.

Twenty stocks matched the Jefferies metrics, and we screened for the technology and internet-related stocks that could be poised to shoot higher after a dreadful year. Five well-known top Buy-rated names look like solid ideas for aggressive growth investors looking to exploit the January effect potential. It is important to keep in mind that no single analyst report should be used as a sole basis for any buying or selling decision.

DraftKings

While sports betting has exploded across the United States, the cost of acquiring and maintaining bettors has weighed heavily on the top names in the business. DraftKings Inc. (NASDAQ: DKNG) operates as a digital sports entertainment and gaming company. It offers multichannel sports betting and gaming technologies, powering sports and gaming entertainment for operators in 17 countries.

The company operates iGaming through its DraftKings brand in five states, as well as operates Golden Nugget Online Gaming, an iGaming product and gaming brand, in three states. Its Sportsbook is live with mobile and/or retail betting operations in the United States pursuant to regulations in 18 states.

DraftKings daily fantasy sports product is available in six countries with 15 distinct sports categories. In addition, it offers DraftKings Marketplace, a digital collectibles ecosystem designed for mainstream accessibility that offers curated NFT drops and supports secondary-market transactions, as well as owns Vegas Sports Information Network, a multiplatform broadcast and content company.

Jefferies has a $33 price target on DraftKings stock. The consensus target is lower at $20.70, and the stock closed on Tuesday at $11.83.

Etsy

Shares of this top internet retail name have been almost cut in half over the past year. Etsy Inc. (NASDAQ: ETSY) operates two-sided online marketplaces that connect buyers and sellers, primarily in North America, Europe and India. Its primary marketplace is Etsy.com, which connects artisans and entrepreneurs with various consumers.
Etsy also offers Reverb, a musical instrument marketplace; Depop, a fashion resale marketplace; and Elo7, a Brazil-based marketplace for handmade and unique items. It also provides various seller services, including Etsy Payments, a payment processing service; Etsy Ads, an advertising platform; and Etsy Shipping Labels, which allows sellers in the United States, Canada, the United Kingdom, and Australia to purchase discounted shipping labels.
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In addition, the company provides various seller tools, including Shop Manager dashboard, a centralized hub for Etsy sellers to track orders, manage inventory, view metrics and statistics and have conversations with their customers. Its Sell on Etsy is an application to enable enhanced onboarding and video uploading. Its Etsy seller analytics pages provide insights regarding traffic acquisition for their shops, and Targeted Offers is a sales and promotions tool and social media tool. It also offers accounting and bookkeeping services.

Etsy also provides educational resources including blog posts, video tutorials, Etsy Seller Handbook, Etsy.com online forums and a Star Seller program. Etsy Teams is a platform to build personal relationships with other Etsy sellers. As of December 31, 2021, it connected a total of 7.5 million active sellers to 96.3 million active buyers and had 120 million items for sale.

The $138 Jefferies target price is well above the $121.04 consensus target for Etsy stock. Shares closed at $127.10 on Tuesday.

Marvell Technology

This top semiconductor stock has been mauled like most names in the industry, but it could be poised for a big 2023 as supply chains improve. Marvell Technology Inc. (NASDAQ: MRVL) designs, develops and sells analog, mixed-signal, digital signal processing and embedded and standalone integrated circuits.

The company offers a portfolio of Ethernet solutions, including controllers, network adapters, physical transceivers and switches, as well as single or multiple core processors, application-specific integrated circuits, and printer system-on-a-chip products and application processors.

Marvell Technology also provides a range of storage products, comprising storage controllers for hard disk drives and solid-state drives that support various host system interfaces, consisting of serial attached SCSI, serial advanced technology attachment, peripheral component interconnect express, non-volatile memory express (NVMe) and NVMe over fabrics; and fiber channel products, including host bus adapters and controllers for server and storage system connectivity. It has operations in the United States, China, India, Israel, Japan, South Korea, and elsewhere.

The Jefferies price target is $58, while the consensus target is higher at $63.12. Tuesday’s final trade for Marvell Technology stock was reported at $37.81.

NetApp

This company was hit hard when its fiscal 2023 guidance disappointed, offering investors a stellar entry point. NetApp Inc. (NASDAQ: NTAP) provides cloud-led and data-centric services to manage and share data on-premises, and private and public clouds worldwide.

The company offers intelligent data management software, such as NetApp ONTAP, NetApp Snapshot, NetApp SnapCenter Backup Management, NetApp SnapMirror Data Replication, NetApp SnapLock Data Compliance, NetApp ElementOS software and NetApp SANtricity software. Its storage infrastructure solutions include NetApp All-Flash FAS series, NetApp Fabric Attached Storage, NetApp FlexPod, NetApp E/EF series, NetApp StorageGRID and NetApp SolidFire.
NetApp also provides cloud storage and data services, comprising NetApp Cloud Volumes ONTAP, Azure NetApp Files, Amazon FSx for NetApp ONTAP, NetApp Cloud Volumes Service for Google Cloud, NetApp Cloud Sync, NetApp Cloud Tiering, NetApp Cloud Backup, NetApp Cloud Data Sense and NetApp Cloud Volumes Edge Cache. Its cloud operations services include NetApp Cloud Insights, Spot Ocean Kubernetes Suite, Spot Security, Spot Eco and Spot CloudCheckr.
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In addition, the company offers application-aware data management service under the NetApp Astra name, and professional and support services, such as strategic consulting, professional, managed and support services. Further, it provides assessment, design, implementation and migration services.

NetApp stock has an $84 target price at Jefferies. The consensus target is $78.05, and Tuesday’s close was at $59.47.

Okta

This top software stock was dismantled and has plummeted over the past year. Okta Inc. (NASDAQ: OKTA) provides identity solutions for enterprises, small and medium-sized businesses, universities, nonprofits and government agencies in the United States and internationally.

The company offers Okta Identity Cloud, a platform that offers a suite of products and services, such as Universal Directory, a cloud-based system of record to store and secure user, application and device profiles for an organization; Single Sign-On that enables users to access applications in the cloud or on-premise from various devices; Adaptive Multi-Factor Authentication provides a layer of security for cloud, mobile, Web applications and data; Lifecycle Management that enables IT organizations or developers to manage a user’s identity throughout its lifecycle; API Access Management that enables organizations to secure APIs; Access Gateway that enables organizations to extend the Okta Identity Cloud from the cloud to their existing on-premise applications; and Advanced Server Access to secure cloud infrastructure.

Okta also provides Auth0 products, including Universal Login that allows customers to provide login experience across different applications and devices; Attack Protection, a suite of security capabilities that protect from malicious traffics; Adaptive Multi-Factor Authentication that minimizes friction to end users; Passwordless authentication enables users to login without a password and supports in various login methods; Machine to Machine provides standards-based authentication and authorization; private Cloud that allows customers to run a dedicated cloud instance of Auth0; and Organizations that enables customers to independent configurations, login experiences and security options.

Jefferies has set an $80 target price, and the consensus target is $78.85. Okta stock closed on Tuesday at $66.27.

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None of these stocks are appropriate for conservative investors, but aggressive growth investors with some dry powder may want to consider positions in these top companies that were all hammered in 2022. Plus, if the Jefferies theory on the January effect comes to fruition, there could be some big gains coming from these former white-hot stocks.

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