3 Mid-Caps with Scary Good Upside

The classic investment adage “no risk, no reward” has several variants but they all convey the same message. There is a direct correlation between the level of risk in an investment and its expected return.

This rule applies when it comes to moving up and down the capitalization spectrum. Generally speaking, small cap stocks come with higher risk and return expectations while large caps imply lower risk and return. There are plenty of exceptions.

Mid-caps lie somewhere in between and are considered by many investors to be the “sweet spot” of equity investing. Within the mid cap space there is a wide range of industry and style representation. Those that have the biggest return potential often lie in the growth category.

Here are three mid-cap growth names that pack plenty of risk but some serious return potential as well.

Will Bandwidth Stock Go Up?

Telecommunication infrastructure company Bandwidth (NASDAQ: BAND) has topped consensus earnings expectations in every quarter since arriving on the scene in late-2017. Up until this year, that has coincided with gain after gain in its share price.

In 2021, the Communications Platform-as-a-Service (CPaaS) provider is down 40% but most analysts think a turning point is near. The Street is forecasting 42% top-line growth this year which would mark a deceleration from last year’s 47% growth but by no means justifies the stock’s recent slide.

This month three sell-side firms have called Bandwidth a ‘buy’ while Morgan Stanley reiterated its neutral stance. Even including Morgan Stanley’s more cautious $105 target, the average price target of the four firms is around $163.

This week, Barclays started coverage of the stock with an ‘overweight’ rating and $160 target which implies 74% upside. The analyst noted that Bandwidth is facing tough comparisons to last year when it benefited from a pandemic-related demand surge. He went on to say that over the long haul the company will benefit from “accelerating large enterprise cloud communications adoption”.

In layman’s terms, this means that businesses are increasingly demanding voice usage and messaging services for virtual meetings and remote communications. And with the likes of Cisco, Google, and Microsoft as clients, Bandwidth should have ample bandwidth to reel in the new business wins.

Why are Analysts Bullish on Vroom Stock?

Over the past 12 months, online auto marketplace Vroom (NASDAQ: VRM) has gone in reverse, a stark contrast to its post-IPO trading days when it raced above $75. Now trading in the low $20’s most analysts say it has nowhere to go but up.

In the past 10 days, four Wall Street firms have reiterated their ‘buy’ ratings while Jeffries opted for a ‘hold’. Two of the four bullish firms offered price targets which suggest the stock can double.

Much of the renewed optimism around Vroom ties to the company’s acquisition of automotive lender United Auto Credit Corporation (UACC). The move is expected to bring more customers to Vroom’s platform on account of UACC’s network of more than 7,000 auto dealerships.

Vroom faces tough competition with the likes of Carvana, CarGurus, and a wave of market entrants. Bringing in a leading non-prime auto lender should go a long way in differentiating the Vroom brand as the used car market continues to gravitate towards e-commerce. The availability of built-in financing solutions is a major part of the used car buyer’s decision when shopping online—and Vroom’s plan to expand into non-prime financing by 2023 should drive many more users to its platform.

Is MarketWise a Good Play on Self-Directed Investing?

MarketWise (NASDAQ: MKTW) has had the same fate that many highly touted software companies do. It got off to a hot start following its July 2021 IPO only to later slide back below its initial offering price. Once enamored by the investment solutions provider, investors have seemingly dropped MarketWise like a bad habit. That may not have been the wisest of decisions.

Far from a one-trick pony, MarketWise is a conglomerate of a dozen financial software brands encompassing 160-plus products. The products are tailored to self-directed rather than institutional investors which to some is less compelling because it is the latter that have the deeper pockets. Yet there is power in numbers and MarketWise has amassed more than 13 million digital users more than 1 million of which are paid, subscribers. Its investor base has grown at an impressive 73% clip over the last two years.  

There is another reason MarketWise’s target market shouldn’t be downplayed. A growing mass of do-it-yourself investors largely born out of the pandemic and inspired by social media interaction is seeking unique, user-friendly tools to support the research process. With popular offerings like TradeSmith, InvestorPlace, and Stansberry Research, MarketWise has plenty of products to offer and more in development.

The ranks of self-directed investors are poised to keep swelling especially among Millennials and Generation Zers. Retail traders have shown an unprecedented ability to move the markets in recent months and their appetite for digital solutions that provide an edge are likely to stay strong. Look for MarketWise to benefit from these trends and its stock price to head back into the teens in the near future.