5 Mid-Caps to Buy Before the Next Broad Market Sell-Off

Key Points

• The S&P 500 is nearing a top with market-leading trades crowded, values high and dividend yield low. 
• Investors looking to front-run the next downturn should turn to small and mid-caps, where value and yield are found.
• These stocks offer value and yield but also have analysts' support and catalysts for higher share prices in their outlook. 

Concentration and a dimming outlook for earnings growth (outside of tech) in 2024 have the S&P 500 NYSEARCA: SPY set up for a correction. It may not happen soon, but signs continue to grow, with investors flooding into market leaders like NVIDIA NASDAQ: NVDA, Advanced Micro Devices NASDAQ: AMD, Amazon NASDAQ: AMZN, and Meta Platforms NASDAQ: META, and expectations for rate cuts are receding. Proactive investors should look to small and mid-caps where value and yield are abundant. 

Rate cuts are important because they will signal a pivot in the economy that will precede improving earnings power for the S&P 500. As it is, the market expects the first cuts to come by June, and it may be gravely disappointed. The latest inflation data shows CPI and PPI accelerating compared to last year and in no position to allow FOMC members room to cut. In this scenario, hopes and dreams may propel the S&P 500, but a top will likely be reached before summer. When that happens, the entire market shifting focus from mega-cap tech will drive the S&P 500 significantly lower. 

Bloomin’ Brands Will Blossom in 2024

Bloomin’ Brands NASDAQ: BLMN is attractive because it is a value relative to the S&P 500 and its peers. Trading at less than 12X earnings, it is a deep value compared to Darden Restaurants and Texas Roadhouse, its closest peers. Drivers in 2024 include improving financials, growth, and activist investor involvement. Starboard Capital is well-known for its ability to unlock shareholder value in restaurants and is expected to do the same for BLMN shareholders. Plans for 2024 include closing numerous underperforming locations and shifting the capital to newer ones.

Analyst sentiment lags behind this market, but a shift was seen following the Q4 release. Several analysts made upward revisions to the price targets, putting a floor in the market.  Among the revisions is the new high target of $32, which is 10% higher than the current action. Regarding the dividend, BLMN shares pay more than 3.25% at $29 and capital returns are bolstered by share repurchases. The company announced a new $350 million authorization in Q1 worth 14% of today’s market cap. 

Kontoor Brands is a Good Fit for 2024

Kontoor Brands NYSE: KTB operates in two segments, Wrangler and Lee, making it a pure play on high-quality, affordable apparel. The company is pivoting back to growth this year and widening its margin, catching the attention of analysts. Analysts rate this stock as a Moderate Buy and are raising their price targets this year. 

The consensus assumes a 15% upside, and the range's low end assumes the stock has a deep value: it is higher than current share prices and recently increased. Kontoor Brands trades at a reasonable 13X earnings and pays 3.3%. Its yield is reliable at 45% of profits. The dividend safety was recently highlighted when the company increased its repurchase authorization by $300 million, or about 9% of the current market cap. 

Hasbro has What it Takes to Lure Investors

Hasbro’s NASDAQ: HAS outlook for 2024 is mixed but includes margin improvement and solid dividend coverage, which matters today. The margin is expected to widen and provide sufficient cash flow to cover the substantial dividend. Trading at 16X earnings and long-term lows, the yield is near 5.25%, surpassing the broad market average. Analysts' sentiment slipped over the last year, but the group is Holding and sees limits to the downside. The range’s low end is $52, just below current action; the consensus assumes a 25% upside. 

Nexstar Media Group Will Benefit From Election Cycle

Nexstar Media Group NASDAQ: NXST is a broadcast media specialist who is expected to benefit from the election cycle. Its channels and programming are ideally situated for election-cycle ad-spending, which is expected to be substantial. Analysts rate this 4% yielding stock at Moderate Buy and see it advancing by 25% at the midpoint. 

Whirlpool is at Rock Bottom with Growth and Margin to Propel it Higher 

Whirlpool NYSE: WHR stock is trading near long-term lows and rock-bottom prices, with a pivot back to growth and widening margins expected this year. The company’s earnings forecast has the 6.45% yield at 43% of the profits, and the distribution may be increased at the end of the year. Trading at 8X earnings, the stock is a value compared to its historical norms and roughly 30% undervalued. Analysts rate the stock at Hold but have been lifting their price targets. The stock is forecast to rise by 15% at the consensus; the freshest target is $140 or about 30% upside.