In this article, we discuss 10 best mid-cap stocks to buy according to top investors. If you want to see more stocks in this selection, check out Top Investors’ Stock Portfolio: 5 Mid-Cap Stocks To Buy.
A popular strategy for increasing variety in an investment portfolio is to add smaller company stocks to a portfolio of large company stocks. Although this method is easy to implement and seems reasonable, it ignores the potential benefits that come with investing in medium-sized U.S. companies. Investing in mid-cap U.S. companies has numerous benefits for investors. These include the potential for strong long-term performance, historical outperformance during both up and down market conditions, the opportunity to select individual stocks and add value in a potentially inefficient market, higher returns for the amount of risk taken, a combination of high earnings growth and reasonable valuations, the ability to benefit from mergers and acquisitions, and a high proportion of companies at the optimal stage of their growth cycle.
Why Invest in Mid-Cap Stocks?
According to John Hancock Investment Management, in the event of an economic downturn, mid-cap value stocks may show resilience due to their ability to set prices for their products or services. These companies have recently experienced lower profit margins due to increased costs for inputs and freight. However, as these pressures ease, mid-cap firms may experience a unique form of margin insulation, where even if demand for cyclical sectors decreases, year-over-year comparisons could still show an increase in margins. This suggests that mid-cap value companies may perform better fundamentally during an economic downturn than would typically be expected. As of the beginning of February 2023, over 80% of the mid-cap companies in which John Hancock Investment Management invests are currently experiencing or are expected to experience positive earnings momentum in the near future. This represents a significant amount of positive momentum and is particularly noteworthy given the low valuations of value stocks over the past decade, as well as what the firm considers to be strong fundamental characteristics across the board.
In the past, large-cap companies have tended to receive more attention from analysts, and the trading activity of the largest companies in both large-cap and mid-cap indices indicates a preference for larger-cap stocks. This suggests that many investors have a lower level of exposure to mid-cap stocks. It’s important to note that mid-sized companies are essentially mature, but not yet old companies. They have surpassed the vulnerabilities of smaller, newer companies, but they are not as large as mega-cap companies that require more effort to increase return on invested capital. Mid-cap companies often present a great opportunity for stable growth compared to small-cap companies, but they also have the potential for faster growth. Some of the top mid-cap stocks to invest in include Expedia Group, Inc. (NASDAQ:EXPE), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), and CF Industries Holdings, Inc. (NYSE:CF).
Our Methodology
We selected the following mid-cap stocks, with market caps between $10 billion and $20 billion as of February 24, based on overall hedge fund sentiment toward each stock. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the fourth quarter of 2022. The list is arranged in ascending order of the number of hedge fund holders in each firm.
Photo by Austin Distel on Unsplash
Top Investors’ Stock Portfolio: Mid-Cap Stocks To Buy
10. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 48
Market Capitalization as of February 24: $16.113 billion
Marathon Oil Corporation (NYSE:MRO) is a Texas-based independent exploration and production company that engages in the exploration, production, and marketing of crude oil and condensate, natural gas liquids, and natural gas. On January 25, Marathon Oil Corporation (NYSE:MRO) declared a $0.10 per share quarterly dividend, an 11.1% increase from its prior dividend of $0.09. The dividend is payable on March 10, to shareholders of record on February 15.
On February 23, Citi analyst Scott Gruber maintained a Neutral rating on Marathon Oil Corporation (NYSE:MRO) but lowered the firm’s price target on the shares to $27 from $30. The analyst updated the firm’s model following the Q4 results.
According to Insider Monkey’s fourth quarter database, 48 hedge funds were long Marathon Oil Corporation (NYSE:MRO), compared to 50 funds in the earlier quarter. John Overdeck and David Siegel’s Two Sigma Advisors is the biggest stakeholder of the company, with 6.3 million shares worth $171.4 million.
Like Expedia Group, Inc. (NASDAQ:EXPE), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), and CF Industries Holdings, Inc. (NYSE:CF), Marathon Oil Corporation (NYSE:MRO) is one of the best mid-cap stocks to invest in.
Here is what Carillon Tower Advisers had to say about Marathon Oil Corporation (NYSE:MRO) in its “Carillon Clarivest Capital Appreciation Fund” first-quarter 2022 investor letter:
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Marathon Oil (NYSE:MRO) increased its quarterly dividend and executed an impressive share buyback that blew by the target it originally announced.”
9. Cardinal Health, Inc. (NYSE:CAH)
Number of Hedge Fund Holders: 50
Market Capitalization as of February 24: $19.985 billion
Cardinal Health, Inc. (NYSE:CAH) functions as a provider of healthcare products and services globally including the United States, Canada, Europe, and Asia. Its offerings are tailored to meet the needs of hospitals, healthcare systems, pharmacies, clinical laboratories, ambulatory surgery centers, physician offices, and patients receiving care at home. On February 10, Cardinal Health, Inc. (NYSE:CAH) declared a $0.4957 per share quarterly dividend, in line with previous. The dividend is payable on April 15, to shareholders of record on April 3. It is one of the best mid-cap stocks to invest in.
On February 3, Baird analyst Eric Coldwell upgraded Cardinal Health, Inc. (NYSE:CAH) to Outperform from Neutral with a price target of $94, up from $87. The analyst believes that Cardinal Health, Inc. (NYSE:CAH) has demonstrated its worth as a positive drug distributor in recent quarters. The company’s Pharma unit is making progress in narrowing its profit growth gap compared to its peers, while its Medical unit is making steady progress in implementing its turnaround plan. The analyst observed that Cardinal Health, Inc. (NYSE:CAH)’s stock is no longer a “value trap” and is now poised for growth.
According to Insider Monkey’s fourth quarter database, 50 hedge funds were bullish on Cardinal Health, Inc. (NYSE:CAH), compared to 45 funds in the last quarter. Richard S. Pzena’s Pzena Investment Management is the largest stakeholder of the company, with 2.5 million shares worth $195.8 million.
Ariel Investment made the following comment about Cardinal Health, Inc. (NYSE:CAH) in its Q3 2022 investor letter:
“Additionally, distributor of pharmaceutical and medical products Cardinal Health, Inc. (NYSE:CAH) advanced in the period as leadership changes were viewed to be a positive for shares. Management provided a new profit outlook for Fiscal 2023 and announced an improvement plan for the medical segment. We are encouraged by these changes and think CAH’s underlying fundamentals and competitive advantages around preventative maintenance screenings and medication management will continue to improve. We believe valuations of health care companies like CAH that focus on cost optimization and promote technological efficiency across the supply chain will be rewarded over the long term.”
8. Bunge Limited (NYSE:BG)
Number of Hedge Fund Holders: 50
Market Capitalization as of February 24: $14.689 billion
Bunge Limited (NYSE:BG) is a food company that operates through four segments – Agribusiness, Refined and Specialty Oils, Milling, and Sugar and Bioenergy. On February 23, Bunge Limited (NYSE:BG) declared a quarterly dividend of $0.625 per share, in line with previous. The dividend is payable on June 2, to shareholders of record on May 19. Bunge Limited (NYSE:BG) is one of the top mid-cap stocks to buy according to smart investors.
On February 9, Baird analyst Ben Kallo downgraded Bunge Limited (NYSE:BG) to Neutral from Outperform with a price target of $115, down from $127. Although the company exceeded market expectations, it has provided initial 2023 guidance that falls short of Street expectations, according to the analyst. The guidance is probably conservative and represents a starting point for the year, but the shares are likely to remain stagnant in the short term until there is more clarity on 2023 and beyond, the analyst suggested.
According to Insider Monkey’s data, 50 hedge funds were bullish on Bunge Limited (NYSE:BG) at the end of December 2022, compared to 48 funds in the prior quarter. Jack Woodruff’s Candlestick Capital Management is the biggest stakeholder of the company, with 1.15 million shares worth $114.7 million.
Here is what Old West Investment Management has to say about Bunge Limited (NYSE:BG) in its Q1 2022 investor letter:
“Bunge (pronounced BUN-GEE) Ltd (NYSE:BG) is one of the biggest agribusinesses and food companies in the world. There are four worldwide companies that dominate the sector, the others being Archer-Daniels-Midland Cargill, and Dreyfuss. One of our favorite ways to screen for new ideas is following insider buying. When I saw the Form 4 filed by new Bunge CEO Greg Heckman, his purchase of $9 million of BG stock intrigued me. My initial thought was the company gave him the stock as a signing bonus. I contacted BG Investor Relations and asked whether it was a signing bonus or did Heckman actually write a check for $9 million. IR assured me it was his own hard-earned money that he invested in the company he was about to run.
Heckman was a long time executive at Conagra Foods who obviously sensed opportunity at BG. One of his first moves as CEO was to move the company’s HQ from New York to St. Louis, right in the middle of America’s breadbasket. BG had been plagued for years with poor decisions by underperforming management. Heckman’s decision to move to St. Louis was indicative of a no-nonsense style and he would commence cutting expenses and selling non-core assets…” (Click here to see the full text)
7. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 52
Market Capitalization as of February 24: $11.783 billion
Builders FirstSource, Inc. (NYSE:BLDR) was founded in 1998 and is based in Dallas, Texas. The company manufactures and supplies building materials, engineered components, and construction services to professional homebuilders, sub-contractors, and customers in the United States. It is one of the best mid-cap stocks to invest in according to top investors.
On February 6, B. Riley analyst Alex Rygiel raised the firm’s price target on Builders FirstSource, Inc. (NYSE:BLDR) to $70 from $59 and maintained a Neutral rating on the shares. This move comes after attending the NAHB International Builders’ Show, where the analyst saw reasons for optimism in the building materials sector. As a result, the analyst increased targets across the building materials industry to reflect this positivity, the low rate environment, and stronger balance sheets.
According to Insider Monkey’s Q4 data, 52 hedge funds were long Builders FirstSource, Inc. (NYSE:BLDR), compared to 49 funds in the prior quarter. Christopher Shackelton and Adam Gray’s Coliseum Capital is the biggest stakeholder of the company, with approximately 3.6 million shares worth $233.3 million.
Praetorian Capital made the following comment about Builders FirstSource, Inc. (NYSE:BLDR) in its Q3 2022 investor letter:
“Builders FirstSource, Inc. (NYSE:BLDR) produces and distributes building materials, primarily for the home building industry. It trades at a low-single digit cash flow multiple on recent earnings and is using that cash flow to rapidly repurchase shares. One could say that the low multiple is due to peak cyclical earnings. I take a different view and believe that we’re in the early stages of a long-term housing boom caused by migration to low tax states along with a catch-up phase as home construction rates were below trendline over the past decade. I believe that the US needs in excess of 1 million new single-family homes each year, just to provide for population growth, ignoring the other factors. As a result, this business does not appear to be at peak earnings; instead, I believe we are seeing a new baseline for earnings—though the earnings will be quite volatile—particularly if interest rates remain elevated or increase further.”
6. Splunk Inc. (NASDAQ:SPLK)
Number of Hedge Fund Holders: 52
Market Capitalization as of February 24: $16.681 billion
Splunk Inc. (NASDAQ:SPLK) is a California-based provider of software and cloud solutions that deliver and operationalize insights from the data generated by digital systems in the United States and internationally. On February 1, Splunk Inc. (NASDAQ:SPLK) announced that it will be laying off approximately 4% of its employees worldwide, with a focus on North America. This move is part of a restructuring effort aimed at improving its operational efficiency and reducing costs.
On February 22, Brad Sills, an analyst at Bank of America, increased the firm’s price target for Splunk Inc. (NASDAQ:SPLK) from $110 to $125. He maintained a Buy rating on the shares and has adjusted the estimates after conducting channel checks with Splunk’s SI partners following the Q4 close. The firm’s research suggests that there is a strong demand for Splunk Inc. (NASDAQ:SPLK), which is expected to result in increased annual recurring revenue.
According to Insider Monkey’s fourth quarter database, 52 hedge funds were bullish on Splunk Inc. (NASDAQ:SPLK), compared to 46 funds in the prior quarter. Alex Sacerdote’s Whale Rock Capital Management is a prominent stakeholder of the company, with 2.5 million shares worth $217.3 million.
In addition to Expedia Group, Inc. (NASDAQ:EXPE), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), and CF Industries Holdings, Inc. (NYSE:CF), elite investors are piling into Splunk Inc. (NASDAQ:SPLK).
Vulcan Value Partners made the following comment about Splunk Inc. (NASDAQ:SPLK) in its Q4 2022 investor letter:
“We exited our position in Splunk Inc. (NASDAQ:SPLK) during the quarter. A number of developments caused us to question whether Splunk’s competitive position was eroding. Splunk is a premium product, and less expensive alternatives have made progress increasing the quality of their offerings. Our research has confirmed Splunk is losing market share to these players, including Microsoft’s Sentinel. Sentinel has made a number of improvements over time and integrates with Microsoft’s other products. Notably, both of Splunk’s Co-Presidents left Splunk in 2022 to work for Microsoft. Splunk’s Chief Financial Officer left a few months later. Before the CFO left, Splunk lowered its annual recurring revenue guidance for the year. While the company attributed the change to the macro environment, we were unable to differentiate to what extent the slowdown was caused by the macro environment versus competitive factors. Based on our primary research and competitive concerns, we no longer had sufficient confidence in Splunk’s value stability. Splunk no longer qualifies for investment, and we exited the position.”
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Disclosure: None. Top Investors’ Stock Portfolio: 10 Mid-Cap Stocks To Buy is originally published on Insider Monkey.
