Mid-cap stocks are commonly defined as those of companies with a market capitalization (market cap) of between $2 billion and $10 billion dollars. During bull markets, mid-cap stocks can be overlooked because of slow, steady growth that typically lags the broader market.
However, when the market weakens, investors look for a positive return wherever they can get it. At times like this, the steady performance of mid-cap stocks puts them in high demand. In 2022, the S&P Mid-Cap 400 Index fund was “only" down about 13%. But in a year when all equity classes were tested, the index still outperformed the S&P 500 index that was down approximately 18% in the same time period.
One common characteristic of every stock on this list is a growing dividend. This isn't necessarily unusual for mid-cap stocks, but it's not always common. That makes them ideal candidates for investors that are willing to assume the risk of investing in equities in 2023.
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- Dick’s Sporting Goods
- Reinsurance Group of America
- Advance Auto Parts
- NextEra Energy Products
- Owens Corning
- Casey’s General Stores
- Royal Gold
#1 - Dick’s Sporting Goods (NYSE:DKS)
Many analysts are forecasting an “earnings recession” next year. Dick’s Sporting Goods (NYSE: DKS) is hoping to be an outlier. If they are, it will break the trend of where earnings have been going in fiscal year 2023.
Analysts forecast quarterly earnings per share of about $2.90 for Dick’s fourth quarter. That would put earnings per share for the company’s full fiscal year 2023 at approximately $12 a share. That’s about a 20% drop from the EPS of over $15 the company achieved in the fiscal year 2022.
However, Dick’s is forecasting full-year 2024 EPS at $13.25. Nobody reasonably expects Dick’s to deliver the same earnings as in its fiscal year 2022. That was an outlier based on a reopening of the economy – and particularly school sports.
But it does show the strength of the company’s margins, which are holding up in the face of sticky inflation. Since earnings are what generally fuel stock price performance, it’s likely to mean that investors can be optimistic about the consensus price target of analysts tracked by MarketBeat, which gives DKS stock a 9.56% upside from its January 5, 2023 price.
Dick’s pays a dividend that currently yields 1.57%. The company has been increasing its dividend in the last 8 years. The dividend has an annual growth rate of approximately 17%.
About DICK'S Sporting Goods
DICK'S Sporting Goods, Inc, together with its subsidiaries, operates as an omni-channel sporting goods retailer primarily in the United States. The company provides hardlines, includes sporting goods equipment, fitness equipment, golf equipment, and fishing gear products; apparel; and footwear and accessories.
Read More - Current Price
- $218.76
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $244.95 (12.0% Upside)
#2 - Reinsurance Group of America (NYSE:RGA)
In times of market volatility, defensive stocks play very well. And with Reinsurance Group of America (NYSE: RGA), you’re making an investment in the aging of America. The company provides insurance for insurance companies (i.e. reinsurance).
One of the most basic examples of why an insurance company may need reinsurance is when a natural disaster occurs. Reinsurance Group focuses on areas such as life and health insurance including in areas like critical illness and disability. The company’s goal is to assist in making health care affordable for all.
A key metric that investors look at is the price-to-earnings (P/E) ratio. RGA checks in with a P/E ratio of around 17x earnings which is in line with the sector averages. The stock was up 29% in 2022 and moved sharply higher in the last quarter of the year.
The fuel for the company’s growth is rapidly growing earnings. And that growth is expected to continue into 2023. Perhaps in anticipation of that, two analysts tracked by MarketBeat have increased their price targets for RGA stock which is currently trading near its 52-week high.
The company pays a dividend that currently yields 2.20%. It has been increasing its dividend in each of the last 11 years.
About Reinsurance Group of America
Reinsurance Group of America, Incorporated engages in reinsurance business. The company offers individual and group life and health insurance products, such as term life, credit life, universal life, whole life, group life and health, joint and last survivor insurance, critical illness, disability, and longevity products; asset-intensive and financial reinsurance products; and other capital motivated solutions.
Read More - Current Price
- $207.54
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $227.77 (9.7% Upside)
#3 - Advance Auto Parts (NYSE:AAP)
The auto parts market has been a model of investor sentiment since the onset of the pandemic. First, most stocks, including Advance Auto Parts (NYSE: AAP) moved steadily higher as consumers continued to work on their cars during the pandemic. Then AAP stock moved sharply higher in 2021 as the economy reopened, and soaring auto prices meant consumers needed to keep their existing rides in tip-top condition.
But 2022 was a different story. Some of it is due to a return of electric vehicle (EV) mania. AAP stock was down 35% for the year. The question for investors in 2023 is, what comes now? Analysts believe the stock has an upside of about 24%. If that’s true, it will need to solve the margin problems evident in its most recent earnings report.
The company missed badly on earnings in its last quarter after the first two quarters also showed flat earnings. Revenue growth is flattening as well. The company believes it can increase its revenue per customer, particularly because it generates a significant portion of revenue through its professional base.
Advance Auto Parts is guiding to earnings per share in a range of $12.60 to $13.55. That’s below the average analysts’ estimate of $14.83.
About Advance Auto Parts
Advance Auto Parts, Inc provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks. The company offers battery accessories; belts and hoses; brakes and brake pads; chassis and climate control parts; clutches and drive shafts; engines and engine parts; exhaust systems and parts; hub assemblies; ignition components and wires; radiators and cooling parts; starters and alternators; and steering and alignment parts.
Read More - Current Price
- $43.52
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 14 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $48.40 (11.2% Upside)
#4 - NextEra Energy Products (NYSE:NEP)
The energy sector was a clear winner in 2023. And one of the intriguing questions that investors are wrestling with in 2023 is how much is left in the tank. With NextEra Energy Products (NYSE: NEP) investors can hedge their bets.
As its name implies, NextEra Energy has one of the largest clean energy portfolios. But the company also has approximately 727 miles of natural gas pipelines. This is increasing the company’s free cash flow (FCF) in 2023 and beyond. And the company says it plans to use a healthy part of that FCF to increase the dividend which already has a healthy 4.43% yield.
The company will deliver record EPS for the full year 2022. And the company recently slashed its forecast for the coming year. That is likely one reason short interest in the stock is up in the last month. But if oil prices rise as expected, it would be bullish for the company’s revenue and earnings.
About NextEra Energy Partners
NextEra Energy Partners, LP acquires, owns, and manages contracted clean energy projects in the United States. It owns a portfolio of contracted renewable generation assets consisting of wind, solar, and battery storage projects. The company owns contracted natural gas pipeline assets. NextEra Energy Partners, LP was incorporated in 2014 and is based in Juno Beach, Florida.
- Current Price
- $17.61
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 11 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $26.00 (47.6% Upside)
#5 - Owens Corning (NYSE:OC)
Like many of the stocks on this list, Owens Corning (NYSE: OC) is projecting a decline in earnings from what will be a record year in 2022. But the company is part of a sector that stands out in 2023.
Owens Corning manufactures building materials such as insulation that is used in construction. This sector is only now starting to see the benefits of the Infrastructure Act that the U.S. Congress passed in 2022. This may allow the company to climb over those estimates. OC stock is already trading at an attractive P/E ratio of just over 6x earnings.
The company has an attractive dividend yield of 2.37% and has increased its dividend in the last eight years. Plus, the dividend has been growing at an annual rate of approximately 7% not only is that slightly ahead of the current inflation trend, but it’s below the company’s earnings growth rate which should give investors a lot of confidence in the security of the dividend.
About Owens Corning
Owens Corning manufactures and sells building and construction materials in the United States, Europe, the Asia Pacific, and internationally. It operates in three segments: Roofing, Insulation, and Composites. The Roofing segment manufactures and sells laminate and strip asphalt roofing shingles, oxidized asphalt materials, and roofing components used in residential and commercial construction, and specialty applications.
Read More - Current Price
- $169.41
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $200.83 (18.5% Upside)
#6 - Casey’s General Stores (NASDAQ:CASY)
Casey’s General Stores (NASDAQ: CASY) operates a chain of gas stations and convenience stores in the United States. But if you want to see what may drive CASY stock, you can look overseas.
The Covid-19 lockdowns in China has been a drag on many stocks. But it may serve as a catalyst for a company that relies on business development in the United States. Right now, the U.S. heartland is expected to see an infrastructure bump as companies attempt to “onshore” their supply chains.
That puts many of these businesses where Casey’s operates the bulk of its 2,400 stores. That should be enough to build on its revenue and earnings growth at record levels. CASY stock is up over 75% in the last five years. In addition to that, the company has an impressive track record of dividend growth. The company has increased its dividend in each of the last 22 years.
About Casey's General Stores
Casey's General Stores, Inc, together with its subsidiaries, operates convenience stores under the Casey's and Casey's General Store names. Its stores offer pizza, donuts, breakfast items, and sandwiches; and tobacco and nicotine products. The company's stores provide soft drinks, energy, water, sports drinks, juices, coffee, and tea and dairy products; beer, wine, and spirits; snacks, candy, packaged bakery, and other food items; ice, ice cream, meals, and appetizers; health and beauty aids, automotive products, electronic accessories, housewares, and pet supplies; and ATM, lotto/lottery, and prepaid cards.
Read More - Current Price
- $403.16
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 3 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $424.00 (5.2% Upside)
#7 - Royal Gold (NASDAQ:RGLD)
The last stock on this list is Royal Gold (NASDAQ: RGLD). While investors in physical gold didn’t see much movement this year, the same can’t be said of gold mining stocks. Royal Gold is up 18% in the last year. That’s not too surprising because gold and equities tend to move in opposite directions.
Still, gold stocks aren’t always the most attractive investment. But with a profit margin of over 40%, investors may want to look closer. Gold is expected to grow at a compound annual growth rate of 3.1% through 2026. That’s not particularly exciting, but it’s comparable to what investors may get from other fixed-income investments, even with the Federal Reserve continuing to raise and maintain interest rates.
If that’s not enough, Royal Gold has increased its dividend for the last 20 years. This allows investors to enjoy the $1.40 per annual share payout on top of the share price growth, which has averaged 8% in the last five years.
About Royal Gold
Royal Gold, Inc, together with its subsidiaries, acquires and manages precious metal streams, royalties, and related interests. The company engages in acquiring stream and royalty interests or to finance projects that are in production, development, or in the exploration stage in exchange for stream or royalty interests, which primarily consists of gold, silver, copper, nickel, zinc, lead, and other metals.
Read More - Current Price
- $133.81
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $165.43 (23.6% Upside)
Mid-cap stocks are a good way to diversify your portfolio. But ultimately your decision to invest in mid-cap stocks comes down to your risk tolerance, timeframe and investment objectives. The stocks on this list were selected using the MarketBeat stock screener tool available to All-Access members.
One way for more risk-averse investors to invest in mid-cap stocks is through exchange-traded funds (ETFS). Some of the most popular ETFs for investors to consider include the Vanguard Mid-Cap ETF (NYSEARCA:VO) and the Invesco S&P Mid-Cap Low Volatility ETF (NYSEARCA:XMLV).
And for investors looking to optimize the dividend part of their portfolio, they may want to consider the ProShares S&P MidCap 400 Dividend Aristocrats ETF (BATS:REGL). This allows you to benefit from companies that have been growing their dividend in at least each of the last 25 consecutive years.
None of the stocks in this presentation are at the dividend aristocrat level…yet. But several are trending in that direction. And if you're a long-term investor, investing in these stocks at their current prices is likely to become a sound investment when the market recovers.
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