In this article, we discuss the 13 best mid-cap stocks to buy now. If you want to skip the detailed analysis of mid-cap stocks, go directly to 5 Best Mid-Cap Stocks to Buy Now.
Approximately 25% of the stocks in the U.S stock market are mid-cap stocks. Mid-cap stocks are companies with a market cap between $2 billion and $10 billion. They can be essential investments if an investor prefers a diversified portfolio. Compared to small-cap and large-cap companies, mid-cap companies provide a middle ground to the risks and rewards. According to the Bureau of Labor Statistics, 30% of new businesses fail within the first two years, 45% in the first five, and 65% in the first ten. However, mid-cap stocks are usually the companies that have passed their growth phase, so they are more stable than small-cap stocks.
Performance-wise, the mid-cap stocks are usually better than their large-cap counterparts. According to S&P MidCap 400 Index, mid-cap companies outperformed the S&P 500 at an annualized rate of 2.03% and the S&P 600 at 0.92% between 1994 and 2019. Moreover, mid-cap stocks are more at risk during market fluctuations but have the potential to perform better than large-cap stocks when markets show a positive trend. From September 2012 to 2022, the S&P MidCap Index has returned $2,393.10 for every $1000 invested.
Historical Performance
A seminal paper by Nobel economics laureate Eugene Fama and co-author Ken French showed that from 1926 to 1992, small- and mid-cap equities consistently outperformed large-cap equities over the long-term. When the research was extended to 2018, the data showed that mid-cap companies had the highest annual returns at 11.9%, followed by small-cap at 11.6%, and large-cap stocks returned 9.7%.
On the downside, the large-cap risk percentage was 17.9%, compared to 26.2% and 30.8% for mid-cap and small-cap stocks, respectively.
Jazz Pharmaceuticals plc (NASDAQ:JAZZ), R1 RCM Inc. (NASDAQ:RCM), and Flex Ltd. (NASDAQ:FLEX) are some of the major mid-cap stocks we will discuss in this article.
Photo by Austin Distel on Unsplash
Our Methodology
After carefully analyzing mid-cap stocks listed on the US stock exchange, we picked these 13 stocks based on their past performance, dividend history, future growth catalysts such as acquisitions and agreements, and analyst ratings. For further understanding of the readers, the hedge fund sentiment of some stocks has also been added, taken from Insider Monkey’s Q2 2022 database of 895 elite hedge funds.
Best Mid-Cap Stocks to Buy Now
13. Crestwood Equity Partners LP (NYSE:CEQP)
Market Cap as of September 2: $2.96 billion
Crestwood Equity Partners LP (NYSE:CEQP) is a midstream energy company based in Texas.
Crestwood Equity Partners LP (NYSE:CEQP) missed its EPS estimates for Q2 2022 by $0.03 after posting an EPS of $0.14. However, the rest of the results were decent, and the future looks favorable. The earnings were impacted by the recent snow storms in April and May and cost the company around $13 million. The company expects this shortfall to be made up in the upcoming quarters due to the healthy rig activity in Williston Basin, Powder River, and Delaware Basin. Crestwood Equity Partners LP (NYSE:CEQP) exited the quarter with 1.7x distribution coverage and 3.7x leverage against $2.9 billion debt.
As of September 8, Crestwood Equity Partners LP (NYSE:CEQP) has a dividend yield of 9.62% at an annualized dividend payout of $2.62. The recent quarterly dividend of $0.655 was paid out on August 12 to the shareholders of record on August 5.
Jazz Pharmaceuticals plc (NASDAQ:JAZZ), R1 RCM Inc. (NASDAQ:RCM), and Flex Ltd. (NASDAQ:FLEX) are some of the significant mid-cap stocks to watch, just like Crestwood Equity Partners LP (NYSE:CEQP).
12. Calix, Inc. (NYSE:CALX)
Market Cap as of September 2: $3.719 billion
Calix, Inc. (NYSE:CALX) is a broadband-as-a-service company offering cloud, software platforms, systems, and services to communications service providers.
Calix, Inc. (NYSE:CALX) has had a reasonably positive run since 2019. The company’s stock price increased from single-digit to $57 at the time of writing. Moreover, the TTM revenue increased by 74% to $736 million. In addition, the company’s balance sheet showed an improvement during the same period. Calix, Inc. (NYSE:CALX)’s June quarter results showed that it had cash & cash equivalents of $51.5 million while the total debt was only $14.4 million, down from $51 million in 2019. The stockholder’s equity totaled $617 million, while the company’s total assets were 4.5x the total liabilities.
On July 27, Craig-Hallum analyst reaffirmed a Buy rating on Christian Schwab Calix, Inc. (NYSE:CALX) with a price target of $69, up from $62. The analyst added that the company reported better than expected Q2 results and guidance and continues to see strong demand and execution in the current complex supply environment.
11. XPO Logistics, Inc. (NYSE:XPO)
Market Cap as of September 2: $6.04 billion
XPO Logistics, Inc. (NYSE:XPO) is an integrated freight and logistics company that provides less-than-truckload and truck brokerage in 30 countries in North America and Europe.
On August 4, despite the global economy’s supply constraints, XPO Logistics, Inc. (NYSE:XPO) wiped the board with its June quarter results. The company had a net income of $1.81 per share vs. the $1.50 consensus. Revenue of $3.23 billion outperformed estimates by $40 million, and the company posted a record adjusted EBITDA for the eighth consecutive quarter to $405 million. Moreover, the company achieved an operating ratio of 80.4%, which is better than any of its competitors.
XPO Logistics, Inc. (NYSE:XPO) announced a spin-off plan for its tech-enabled brokerage platform around July, which will be named RXO. The company plans to separate its less-than-truckload business from its asset-light brokered transportation platform to create two independent publicly traded companies. The spin-off will be completed by this year’s fourth quarter, and the company expects substantial growth prospects in North America.
On August 9, Raymond James analyst Patrick Tyler Brown maintained an Outperform rating on XPO Logistics, Inc. (NYSE:XPO)’s shares and raised the price target to $80 from $70, noting that naming Mario Harik as the CEO of XPO after the spin-off is positive news.
10. Five9, Inc. (NASDAQ:FIVN)
Market Cap as of September 2: $6.41 billion
Five9, Inc. (NASDAQ:FIVN) is a SaaS company providing cloud software for contact centers. According to our database, 51 hedge funds held long positions in the company at the end of Q2 2022. SCGE Management was the most prominent stakeholder in the company, with shares worth $140.21 million after a 26% increase in holdings over the quarter.
On July 28, Five9, Inc. (NASDAQ:FIVN) reported non-GAAP EPS of $0.34, outperforming the estimates by $0.16. The company has shown consistent top-line growth over the years and reported a 31.7% YoY growth in the June quarter to $189.38 million. Furthermore, the company reported that 91% of the company’s revenue is recurring, which has stayed the same since December 2020.
Moreover, Five9, Inc. (NASDAQ:FIVN)’s revenue and EPS guidance for 2022 was better than analysts estimated. It expects its revenue to be $780.5 million to $782.5 million, while the street consensus stands at $772.1 million. The EPS outlook was in the range of $1.38 to $1.40 versus the $1.23 estimates.
In early August, MKM Partners analyst Catharine Trebnick initiated Five9, Inc. (NASDAQ:FIVN)’s coverage with a Buy rating and a $135 price target. The analyst believes the company to be a “leading standalone CCaaS provider with a strong AI product roadmap”.
9. PDC Energy, Inc. (NASDAQ:PDCE)
Market Cap as of September 2: $6.436 billion
PDC Energy, Inc. (NASDAQ:PDCE) is an independent oil and gas exploration and production company. In the June quarter, 35 hedge funds had a stake in the company valued at over $647 million compared to 32 in the previous quarter, with a combined stake value of $401.57 million.
The bullish thesis on PDC Energy, Inc. (NASDAQ:PDCE) comes from its shareholder returns due to its recent acquisition of Great Western Petroleum. The company expects the purchase to provide an additional $1.7 billion in free cash flow per annum for the next two years. Furthermore, the company provided the following structure for its shareholder returns:
“At least 60% of FCF after base dividends will be returned to shareholders in the form of share repurchases and, if necessary, a year-end special dividend. The Company has a $1.25 billion Board authorized share repurchase plan that it expects to fully utilize by the end of 2023.”
It further added that in case the company reaches its annual $625 million share repurchase goal, the special dividend could exceed $300 million. This makes it one of the best mid-cap stocks to buy now.
On August 25, PDC Energy, Inc. (NASDAQ:PDCE) declared a dividend of $0.35 to be paid out on September 22, to shareholders of the company on September 8. As of September 2, the company’s dividend yield is 2.15%.
8. Polaris Inc. (NYSE:PII)
Market Cap as of September 2: $6.69 billion
Polaris Inc. (NYSE:PII) manufactures and sells Powersports vehicles, spare parts, and sports apparel.
Since 2010 and 2021, Polaris Inc. (NYSE:PII) has shown significant growth at a CAGR of 14% and has spent around $1.8 billion on acquisitions. Furthermore, the company has not been majorly affected even during two recessions in the last two decades. During the Great Recession between 2007 and 2009, the company had 0% EPS growth and refused to go into negative. During the pandemic-induced recession, the company reported an 11% EPS growth on a YoY basis.
Polaris Inc. (NYSE:PII) has increased its dividends for 28 consecutive years and has a FWD payout ratio of 23.34%. As of September 2, the company has a dividend yield of 2.26%, ahead of the 1.89% sector average. Polaris is set to payout its next quarterly dividend on September 15, to the shareholders of record as of September 1.
7. Graphic Packaging Holding Company (NYSE:GPK)
Market Cap as of September 2: $6.895 billion
Graphic Packaging Holding Company (NYSE:GPK) is a Georgia-based packaging and container company. It provides fiber-based packaging solutions to food service and consumer products companies.
There are multiple growth catalysts for Graphic Packaging Holding Company (NYSE:GPK). Firstly, the company’s major customers include significant consumer staple firms such as Nestle (OTC:NSRGY), General Mills, Inc. (NYSE:GIS), and The Procter & Gamble Company (NYSE:PG), along with food-service companies like McDonald’s Corporation (NYSE:MCD). However, the most significant demand driver for the company is the increase in frozen foods sales. The frozen food market grew by 15% in 2020 due to stay-at-home orders. In addition, the recent 10.4% increase in at-home food costs due to inflation is driving customers to buy cheaper alternatives.
Moreover, Graphic Packaging Holding Company (NYSE:GPK) remains unaffected by the increased costs of raw materials as it mostly passes its incremental production costs to customers. Between 2013 to 2018, wood pulp prices increased by 10-15% YoY, and GPK’s gross margin remained the same at 20-25%.
On July 27, Deutsche Bank analyst Kyle White maintained a Buy rating on Graphic Packaging Holding Company (NYSE:GPK) and raised the price target to $27 from $25. The analyst added that the company’s Q2 results indicated its organic volume growth, which continues to exceed expectations and its 2023 estimates should move higher given a more favorable price/cost ratio than expected.
Here is what L1 Capital had to say about Graphic Packaging Holding Company in its Q3 2021 investor letter:
“We reinvested the proceeds from the partial sale of Eagle Materials by increasing the Fund’s position in Graphic Packaging. We expect the company to deliver strong earnings and cashflow over coming years, and the company remains undervalued at its current share price.”
6. H&R Block, Inc. (NYSE:HRB)
Market Cap as of September 2: $7.11 billion
H&R Block, Inc. (NYSE:HRB) is a Missouri-based tax preparation company. As of September 2, the company stock has been up by 82.03% on a YoY basis.
On August 9, H&R Block, Inc. (NYSE:HRB) posted its FQ4 2022 earnings reports. The company announced an EPS of $1.43, ahead of the $1.24 consensus. The revenue of $1.05 billion was $55.24 million above the analyst estimates. Furthermore, the company provided FY2023 revenue guidance in the range of $3.353 billion-$3.585 billion, and EPS is expected to be between $3.7 and $3.95. The company exited the quarter with a cash and cash equivalents balance of $885 million and $1.5 billion in long-term debt.
H&R Block, Inc. (NYSE:HRB) paid out $43 million in dividends in the June quarter and declared a dividend increase of 7.4% to a $0.29 quarterly dividend. The company also announced a buyback authorization of $1.25 billion through 2025. As of September 2, H&R Block, Inc. (NYSE:HRB) has a dividend yield of 2.61%, compared to the consumer discretionary segment’s average yield of 1.89%.
H&R Block, Inc. (NYSE:HRB) is a significant mid-cap stock to buy, along with Jazz Pharmaceuticals plc (NASDAQ:JAZZ), R1 RCM Inc. (NASDAQ:RCM), and Flex Ltd. (NASDAQ:FLEX)
Here is what Miller Value Partners had to say about H&R Block, Inc. (NYSE:HRB) in its Q2 2022 investor letter:
“H&R Block (NYSE:HRB) was the top contributor for the quarter, gaining 36.0%. H&R Block reported 3Q22 revenue of $2.1 billion, +3.9% year-over-year (Y/Y), ahead of consensus of $1.9 billion, and Adjusted Earnings Per Share (EPS) of $4.11, unchanged from 3Q21 EPS, ahead of analyst expectations for EPS of $3.75. The company repurchased 10 million shares for $226 million in the quarter, bringing total fiscal-year 2022 (FY22) share repurchases to $550 million, representing 13% of the company’s shares outstanding. Management also increased its FY22 guidance for revenue of $3.38-3.43 billion, up 3.0% from prior guidance of $3.25-3.35 billion at the midpoint, and EBITDA of $850-875 million (Enterprise Value (EV)/EBITDA of ~8.4x), up 9.2% from prior guidance of $765-815 million at the midpoint. H&R Block’s new mobile banking platform, Spruce, which launched in January, has shown encouraging progress so far, accumulating 150k customer signups and $60 million in customer deposits as of 4/30/22.”
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Disclosure. None. 13 Best Mid-Cap Stocks to Buy Now is originally published on Insider Monkey.