Mid-cap stocks are defined as those of companies that have a market capitalization (market cap) between $2 billion and $10 billion. This is a class of stocks that can offer solid growth and value. However, mid-cap stocks can be overlooked by even the most experienced investors.
One of the advantages of owning mid-cap stocks is diversification. Large-cap stocks can mitigate much of the volatility in the market, but they also can limit the upside growth. Small-cap stocks may offer strong growth potential, but they may not be a good choice for investors with a low-risk tolerance. By contrast, the right mid-cap stocks can be a Goldilocks alternative.
In this presentation, we're analyzing seven mid-cap stocks that are showing a nice mix of growth and value. The stocks cover a variety of sectors, and there are stocks for investors of all styles.
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- Ambarella
- Manpower Group
- Myers Industries
- Sturm Ruger
- Hess Midstream
- PennantPark Floating Capital
- Royal Caribbean Cruises
#1 - Ambarella (NASDAQ:AMBA)
The demand for chips in areas such as data centers, smartphones, and electric vehicles is likely to keep demand at above-average levels for several years. However, the semiconductor sector is notoriously cyclical. That’s what makes Ambarella (NASDAQ:AMBA) an interesting choice. The company designs components that chip makers need.
The company specifically focuses on computer vision (CV) semiconductors which in the company’s words “make cameras smarter.” The company’s chips are used in applications such as security cameras and autonomous vehicles. Demand in both categories is expected to grow significantly in the next 10-20 years.
Unlike some other companies we have on this list, Ambarella is definitely a growth play. The company looks a bit overvalued at the moment. And the risk for investors is if the economy slows to the point where the current chip shortage becomes a chip surplus.
But for now, analysts project strong revenue and earnings growth over the next five years. And analysts still have a consensus price target that suggests a 52% upside from current levels.
About Ambarella
Ambarella, Inc develops semiconductor solutions that enable high-definition (HD) and ultra HD compression, image signal processing, and artificial intelligence processing worldwide. The company's system-on-a-chip designs integrated HD video processing, image processing, artificial intelligence computer vision algorithms, audio processing, and system functions onto a single chip for delivering video and image quality, differentiated functionality, and low power consumption.
Read More - Current Price
- $70.93
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $84.17 (18.7% Upside)
#2 - Manpower Group (NYSE:MAN)
Trends in the labor market tend to be a leading economic indicator. Strong job growth typically signals a strong economy. And when the economy weakens, the job market tends to get tighter. However, Manpower Group (NYSE:MAN) is a company that will do well in any economy. That’s because there will always be a demand for finding qualified workers of the type that Manpower provides.
Many analysts see Manpower as being undervalued. The company has a forward P/E ratio of approximately 7.95. And although the company’s revenue is projected to grow at a low single-digit rate over the next five years, the company is projected to show double-digit growth in earnings over the same timeframe.
And of the companies on this list, Manpower has one of the more compelling dividend stories. The company has increased its dividend in each of the last 13 years and sports a dividend yield of over 3.47%.
About ManpowerGroup
ManpowerGroup Inc provides workforce solutions and services worldwide. The company offers recruitment services, including permanent, temporary, and contract recruitment of professionals, as well as administrative and industrial positions under the Manpower and Experis brands. It also offers various assessment services; training and development services; career and talent management; and outsourcing services related to human resources functions primarily in the areas of large-scale recruiting and workforce-intensive initiatives.
Read More - Current Price
- $56.94
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $76.60 (34.5% Upside)
#3 - Myers Industries (NYSE:MYE)
If you’re looking for a mid-cap play in the industrial sector, Myers Industries (NYSE:MYE) holds some appeal. The diversified manufacturing company focuses on polymer products and wholesale distribution specifically related to tire service supplies in Ohio.
This is an example of when boring can be beautiful. If you bought the stock in 2017, you’d be rewarded with 36% share price growth. And you would have been able to take advantage of a reliable, if not unspectacular, dividend of 54 cents per share on an annualized basis.
The company is expected to show strong earning per share growth over the next five years. Since share price growth usually follows strong earnings, MYE stock could be an opportunistic buy at this time.
About Myers Industries
Myers Industries, Inc engages in distribution of tire service supplies in Ohio. It operates through two segments, The Material Handling and Distribution. The Material Handling segment offers pallets, small parts bins, bulk shipping containers, and OEM parts, as well as storage and organization, and custom plastic products; and injection molded, rotationally molded or blow molded products, consumer fuel containers and tanks for water, fuel, and waste handling.
Read More - Current Price
- $11.40
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $22.00 (93.0% Upside)
#4 - Sturm Ruger (NYSE:RGR)
It generally has a negative effect on a company’s stock when its CEO appears in front of a Congressional committee. That’s the situation with Sturm Ruger (NYSE:RGR). The company’s CEO, Christopher Killoy, appeared in front of the House of Representatives Committee on Oversight and Reform to defend the company and the industry against charges of profiteering off the sales of the company’s AR-15-style rifles.
It’s unclear what will become of gun legislation in the United States. Analysts project a sharp decline in revenue and earnings over the next five years. And even if that doesn’t come to pass, it’s understandable if some investors find investing in a firearms company distasteful. But if you’re open to investing in the company, there are some compelling fundamentals to consider.
First, Sturm Ruger has nearly tripled its gross revenue since 2019. The company is sitting on over $200 million in cash with no debt. And while the payout on the company’s dividend is, charitably, all over the place, the company retains a dividend yield of around 4%.
About Sturm, Ruger & Company, Inc.
Sturm, Ruger & Company, Inc, together with its subsidiaries, designs, manufactures, and sells firearms under the Ruger name and trademark in the United States. The company operates through two segments: Firearms and Castings. It provides single-shot, autoloading, bolt-action, and modern sporting rifles; rimfire and centerfire autoloading pistols; single-action and double-action revolvers; and firearms accessories and replacement parts, as well as manufactures lever-action rifles under the Marlin name and trademark.
Read More - Current Price
- $34.93
- Consensus Rating
- Strong Buy
- Ratings Breakdown
- 1 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#5 - Hess Midstream (NYSE:HESM)
The future of our nation’s energy infrastructure will involve renewable energy sources. However, millions of Americans still rely on traditional fossil fuels to keep their lights on and their homes at a comfortable temperature. And that’s why you investors should consider Hess Midstream (NYSE:HESM).
As its name suggests, Hess operates as a midstream player. The company specializes in storing, processing, and exporting crude oil and natural gas. Since midstream energy companies benefit more from demand trends than price trends, they tend to offer more predictable cash flows.
Aside from the idea that the company will play a crucial role in filling the need for gas and oil, the company has some appealing fundamentals. Specifically, it currently trades at just over 11x forward earnings. And it offers a dividend that currently yields 7.23%. The main reason that Hess Midstream offers such a generous dividend is that it operates as a master limited partnership.
About Hess Midstream
Hess Midstream LP owns, develops, operates, and acquires midstream assets and provide fee-based services to Hess and third-party customers in the United States. It operates through three segments: Gathering; Processing and Storage; and Terminaling and Export. The Gathering segment owns natural gas gathering and compression systems; crude oil gathering systems; and produced water gathering and disposal facilities.
Read More - Current Price
- $36.20
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $38.67 (6.8% Upside)
#6 - PennantPark Floating Capital (NASDAQ:PFLT)
If you’re a dividend-focused investor, PennantPark Floating Rate Capital (NASDAQ:PFLT) is a company that may fit your investing style. PennantPark is a business development company (BDC) that offers a robust 9.5% yield and pays a dividend on a monthly basis.
Whenever you’re considering a BDC, you should understand the company’s underlying business. PennantPark predominantly invests in the first-lien secured debt of mid-market companies. This is the debt that would be paid first if a company files for bankruptcy.
What makes PennantPark even more attractive is that 100% of its debt carries a variable rate. This means as interest rates rise, so do the rates on the company’s secured loans.
Looking at the company’s fundamentals, PennantPark has an attractive forward P/E rating of just over 10x and it is expected to show growth in revenue and earnings over the next five years.
About PennantPark Floating Rate Capital
PennantPark Floating Rate Capital Ltd. is a business development company. It seeks to make secondary direct, debt, equity, and loan investments. The fund seeks to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies. It primarily invests in the United States and to a limited extent non-U.S.
Read More - Current Price
- $10.68
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 2 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $12.00 (12.4% Upside)
#7 - Royal Caribbean Cruises (NYSE:RCL)
The last mid-cap stock on this list may not be a mid-cap for much longer. However, as of July 2022, Royal Caribbean Cruises (NYSE:RCL) is just below the $10 billion market cap threshold, so it makes a list.
But what is the opportunity? The cruise line now has its entire fleet back on the water. And more importantly, occupancy rates are back to pre-pandemic levels. The forecast is for strong revenue and earnings growth in the next five years. And that should support the company’s forward price/earnings ratio of 7.73 (as of July 2022).
Of course, there’s a risk that the economy may continue to slow. And if that’s the case, the cruise line industry may be affected more than other entertainment sectors. The cruise line also suspended its dividend at the onset of the pandemic in 2020. Based on the company’s past dividend history, there’s reason to believe that the dividend may be reinstated sometime after the company returns to profitability.
About Royal Caribbean Cruises
Royal Caribbean Cruises Ltd. operates as a cruise company worldwide. The company operates cruises under the Royal Caribbean International, Celebrity Cruises, and Silversea Cruises brands, which comprise a range of itineraries. As of February 21, 2024, it operated 65 ships. Royal Caribbean Cruises Ltd.
Read More - Current Price
- $238.43
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $239.75 (0.6% Upside)
Mid-cap stocks are an ideal way to diversify your portfolio. However, as with any asset class, moderation is the key. For many portfolios, a few quality mid-caps will be sufficient to provide the right balance for your portfolio.
The benefits of mid-cap stocks are that they offer the best of both worlds between large-cap and small-cap stocks. Specifically, they are generally less expensive than large-cap stocks and are generally less volatile than many small-cap stocks.
However, like any investment, some mid-cap stocks are still in the growth phase. Therefore, mid-cap stocks are generally the choice of risk-tolerant investors who have the ability to hold on to the stocks for a significant period of time.
Today, there are mutual funds for just about every investment objective and risk tolerance. For example, the Fidelity Index Mid Cap Fund (NYSEARCA:FSMD) closely tracks the Russell Midcap index and is heavily weighted to the technology, industrials, consumer cyclical and financial services sectors.
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