We recently compiled a list of the 10 Most Undervalued Mid Cap Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where WESCO International, Inc. (NYSE:WCC) stands against the other undervalued mid cap stocks.

Mid-cap stocks are often seen as a balanced investment option. They offer a mix of growth potential and financial stability, and have historically outperformed large-cap and small-cap stocks over longer periods for this reason, as mentioned earlier in February by Simeon Hyman, Global Investment Strategist at ProShares Advisors. We covered his detailed sentiment in our 10 Best Performing Mid Cap Stocks to Buy According to Analysts article. Mid-caps are considered undervalued in some cases and provide opportunities for investors seeking quality at a discount. Their domestic focus and higher earnings quality compared to small caps make them an attractive choice for stable growth.

This sentiment was covered earlier on January 25 by Jill Carey Hall, BofA global research head of US small and mid cap strategy. She appeared on CNBC’s ‘Closing Bell’ to discuss small cap headwinds and the opportunity in domestic mid caps due to a tough backdrop for the Russell 2000. The profits growth recovery story for small caps, which many investors were optimistic about last year, has continued to be revised downward and pushed further into 2025. As a result, small-cap profits have continued to disappoint, with negative year-over-year earnings growth still prevalent. In contrast, mid-caps have shown better fundamentals. Hall emphasized that if the market broadens out, mid-caps could offer the best risk-reward, especially in an environment where multiple rate cuts have been priced out of the market. Her economists at BofA expect the Fed to remain on hold without further cuts. This scenario poses refinancing risks for small caps, which have reemerged as rate risks have increased. Mid-caps, however, have better balance sheets and fundamental trends, making them a preferable choice within the small and mid-cap space.

Interest rates also influence small-cap performance. Despite optimism around the economy and potential policies from Trump 2.0, small caps have struggled to achieve sustained gains after brief rallies. Historically, small caps have underperformed for over a decade. While relative valuations suggest they could outperform over the next decade, near-term challenges persist. Investors are cautious due to high expectations and ongoing profit disappointments. Hall noted that rate stabilization or potential rate cuts could support small caps, but Fed policy has been a major driver of recent volatility in this segment. For instance, December marked the worst month for small-cap performance relative to large caps in over 25 years following a hawkish Fed meeting. This year, Hall recommended focusing on companies with strong profits, lower leverage, reduced refinancing risks, or economic sensitivity. Financials appear well-positioned to benefit from potential deregulation or an uptick in M&A. Additionally, stocks with upward earnings revisions have outperformed recently and remain attractive targets.

Methodology

We used the Finviz stock screener to compile a list of the top mid-cap stocks that were trading between $2 billion and $10 billion, and had a forward P/E ratio under 15 each. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

WESCO International, Inc. (NYSE:WCC)

Forward P/E Ratio as of March 5: 12.03

Number of Hedge Fund Holders: 62

WESCO International, Inc. (NYSE:WCC) is a business-to-business distributor that delivers comprehensive supply chain solutions across electrical, communications, and utility sectors. It offers a wide array of products and services to customers globally.

In Q4 2024, sales in the Data Center Solutions segment (within its Communications and Security Solutions business unit) surged by over 70% year-over-year. This was driven by demand from various data center customers, which include hyperscale, multi-tenant, and enterprise clients. Consequently, data center solutions accounted for ~40% of the CSS segment’s total sales, and ~16% of the company’s overall sales in Q4.

The segment’s backlog also increased by 16% from a year-ago period. WESCO International, Inc. (NYSE:WCC) strengthened its position in this market through acquisitions, notably that of Ascent, which provides data center facility management services. This acquisition enhances the company’s ability to offer comprehensive solutions throughout the entire data center lifecycle, from initial construction to ongoing operations and technology upgrades.

Blue Tower Asset Management sees WESCO International, Inc. (NYSE:WCC) as an undervalued play on infrastructure growth related to solar, EVs, and AI, despite its higher leverage compared to peers. Here’s what it said regarding the company in its Q3 2024 investor letter:

“In this letter, I will be exploring our holding in WESCO International, Inc. (NYSE:WCC), an electric infrastructure, component, and communication equipment distributor. These distributors are another indirect way to profit from the ongoing boom in solar technology, electric vehicles, and AI technology. Despite the big boost that these technology trends should provide to these distributor businesses, these distributors are not trading at the expensive multiples of AI-related stocks. While most electric component distributors are benefitting from these trends, Wesco is still realizing the integration benefits from a major 2020 merger and is more levered than peers.

Wesco originated in the Westinghouse Electric and Manufacturing Company in 1922, where it was originally the distribution arm of Westinghouse’s electrical and industrial products.

On February 1, 1994, private equity firm Clayton, Dubilier & Rice (CD&R) purchased Wesco from Westinghouse in a $340M leveraged buyout. Wesco was again sold just 4 years later to The Cypress Group which created the holding company Wesco International. In 1999, the company went public. Over the past 20 years, Wesco engaged in over a dozen acquisitions, growing the scale and geographic scope of the company. In 2020, Wesco completed its largest acquisition with the takeover of Anixter International when it used a combination of cash, Wesco shares, and preferred stock to beat out an offer from CD&R…” (Click here to read the full text)

Overall WCC ranks 1st on our list of the most undervalued mid cap stocks to buy according to hedge funds. While we acknowledge the potential of WCC as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WCC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.

Disclosure: None. This article is originally published at Insider Monkey.