3 Mid-Caps Below $20 That Wall Street Loves

Key Points

• Mid-caps strike a balance between growth potential and trading liquidity.
• Seven out of eight analysts are bullish on Nomad Foods with an average price target of $22.
• ProFrac is consolidating the fracking services market to become a go-to for upstream oil & gas companies.
• Constellium recently reported revenue increased 8% and profits more than quadrupled in the fourth quarter of 2022.

Accelerated inflation. Rising Treasury yields. Expectations of higher interest rates.Together these caused U.S. stocks to record their worst week of 2023 last week — and erase much of their stunning January gains. 

This year’s seesaw market has investors wondering if they are in a new bull market or a bear market rally. Those that believe stocks will trend higher may want to take advantage of the February dip.

In the global mid-cap space, there are roughly 1,000 companies to choose from. Many investors like this group because it strikes a balance between growth potential and trading liquidity. 

But how can such a large subset of stocks be narrowed down to strong candidates with good upside?

One approach is first to identify which companies Wall Street research firms find attractive. Stocks that have a high percentage of buy ratings are a good start.  

This list can be further dwindled down by share price. Low prices allow investors to accumulate a greater ownership stake in the companies they like. Often they come with prospects of greater percentage returns.

Applying this process reveals several Street-endorsed mid-caps that are trading below $20. Here are a few considerations.

Why Is Nomad Foods Stock Going Up?

Nomad Foods Ltd. NYSE: NOMD is a U.K.-based frozen foods business. The company’s best-known brand is Birds Eye, which makes frozen vegetables and British favorite ‘fish fingers.’ Its portfolio is rounded out by several other frozen vegetable, entree and dessert brands popular across Europe and the U.K. 

Last week, Nomad Foods reported mixed fourth-quarter results, beating on revenue but falling a penny short of the consensus EPS estimate. Organic revenue grew 7.7% but it was solely due to price inflation of 15.8%. The gap between these two figures reflected lower sales volumes and an unfavorable product mix. 

Along with flat adjusted earnings, the result looked underwhelming on the surface. But the market gave Nomad the benefit of a challenging economic environment — and considered that for all of 2022, revenue and adjusted EPS were up 13% and 8%, respectively. 

Management provided 2023 EPS guidance which at the midpoint implies a 9% decline from last year, but that didn’t faze the market either. Goldman Sachs upgraded Nomad Foods to Buy because it considers the soft earnings outlook a bottoming event. The analyst thinks that if sales keep growing as they have, EPS could trend higher throughout the year. 

Goldman’s bullish sentiment has helped Nomad Foods’ share price break out of a three-month flatline. Seven out of eight analysts are bullish on the name and an average target of $22 suggests this defensive stock could keep unthawing.

Why Is Wall Street Bullish on ProFrac? 

ProFrac Holding Corp. NASDAQ: ACDC consists of several companies that serve the oil and gas industry. Hydraulic fracturing and well completion are among the services it provides to North American energy producers that tap shale and other unconventional resources. 

To say ProFrac has been on an acquisition spree would be an understatement. In November 2022, it closed a $270 million acquisition of U.S. Well Services, making it the nation’s largest electric frac services operation and significantly expanded its NextGen frac solutions fleet. In January 2023, ProFrac wrapped up two more acquisitions — REV Energy Holdings and Producers Services Holdings — to give it six additional frac fleets. 

This week ProFrac completed its $475 million takeover of Performance Proppants, the largest in-basin proppant producer in the Haynesville shale region of eastern Texas. Another step in the company’s vertical integration strategy, the addition, makes ProFrac the largest producer of fracking sand in North America.

ProFrac is aggressively consolidating the fragmented fracking services market to become a go-to for upstream oil & gas companies. This roll-up strategy and the expanding capabilities that come with it have Wall Street unanimously bullish on the stock. Price targets in the $30 to $35 range imply at least 50% upside. 

What is a Good Mid-Cap Materials Stock?

Constellium SE NYSE: CSTM is a French manufacturer of aluminum products for the packaging, transportation and aerospace industries. Its aluminum sheets and coils are used in anything from food and beverage cans to cosmetics to automobiles. As such, its customer base is highly diversified and includes blue-chip companies like ABInBev, Boeing, Ford and General Motors. 

Last week, Constellium reported that revenue increased by 8% and profits more than quadrupled in the fourth quarter of 2022. The performance was particularly impressive, given the industry's supply chain and inflationary pressures. 

A perfect four of four sell-side research firms have given Constellium a buy rating in the wake of the release. This includes the highly influential Goldman Sachs and Credit Suisse, which sees the $15 stock surpassing $20.