Here’s a stat for you. A dollar invested in U.S. mid-capitalization stocks in 1978 would be worth $199 today, more than a dollar invested in small caps or large caps.
That’s according to an excellent summary of 11 top-rated mid-cap stocks, any one of which could provide stability and growth for your portfolio.
by Dan Burrows, Contributing Writer, Kiplinger.com
Large-cap stocks like those in the Dow Jones Industrial Average might get all the glory, but the best mid-cap stocks often deliver superior returns over the long haul.
Stocks with more middling market values often get lost in the media shuffle. But they shouldn’t.
They typically offer investors the best of both worlds: less volatility than small-cap stocks but greater growth prospects than their large-cap brethren.
And in fact, a dollar invested in mid-caps in 1978 would be worth $199 today, vs. $181 for small caps and $139 for large caps on a total-return basis (price appreciation plus dividends.)
So when Bank of America Global Research says mid-cap stocks have long been the “unsung heroes of the equity market,” it’s not a stretch.
Although there’s no hard-and-fast definition for what makes a mid-cap stock, the S&P MidCap 400 Index serves as sort of the official guide.
As of July 31, stocks in the mid-cap benchmark had an average market cap of $6.2 billion. The smallest component was worth $1.4 billion, while the largest stock had a market value of $18.8 billion.
Using the S&P MidCap 400 as our universe, we were able to suss out Wall Street’s favorite mid-cap stocks to buy now.
Here’s how that works: S&P Global Market Intelligence surveys analysts’ stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell.
Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call.
We then limited ourselves to stocks with at least 10 Strong Buy recommendations. And lastly, we dug into research, fundamental factors and analysts’ estimates on the top-scoring names.
That led us to this list of the 11 best mid-cap stocks to buy now, by virtue of their high analyst ratings and bullish outlooks.
- Market value: $8.3 billion
- Dividend yield: N/A
- Analysts’ consensus recommendation: 1.88 (Buy)
A strong rebound in sales of a potential blockbuster drug has Wall Street analysts bullish on Neurocrine Biosciences (NBIX, $87.19) as a pandemic recovery play.
NBIX, a biotechnology firm, hit COVID-19 headwinds last year as a drop in patient consultations with physicians hurt sales of Ingrezza, its treatment for tardive dyskinesia (TD).
This is a condition affecting the nervous system that is often caused by long-term use of certain psychiatric drugs.
But sales of the potential blockbuster are building back to pre-pandemic levels, analysts say.
“We continue to view NBIX as a COVID recovery name and remain optimistic about Ingrezza’s revenue growth trajectory rebounding back to pre-COVID levels,” writes Raymond James analyst Danielle Brill, who rates shares at Outperform (the equivalent of Buy).
More importantly, analysts expect Ingrezza’s sales trend to continue, setting up the drug for years of outsized growth.
“We believe in the drug’s long-term upside potential that is likely to be realized via an increased TD diagnosis and treatment rate, along with Ingrezza’s ability to gain majority share as a best-in-class product,” writes Stifel analyst Paul Matteis (Buy).
In addition to Ingrezza, bulls point to the success of Elagolix, the firm’s drug to manage pain caused by endometriosis. Stifel estimates that cash flow from Elagolix could be worth close to $2 billion.
Bottom line: the Street has high conviction on NBIX as one of the best mid-cap stocks to buy now.
Of the 25 analysts covering the stock tracked by S&P Global Market Intelligence, 11 rate it at Strong Buy, six say Buy and eight have it at Hold.
Their average target price of $122.56 gives NBIX implied upside of about 40% over the next 12 months or so.
- Market value: $7.3 billion
- Dividend yield: N/A
- Analysts’ consensus recommendation: 1.83 (Buy)
Colfax (CFX, $49.33), which makes industrial machinery, has a history of growth through mergers and acquisitions (M&A).
But it’s the company’s planned split of its two main businesses that has the Street especially bullish on its stock’s potential.
CFX in March said it would split its fabrication technology and medical technology into two separate publicly traded companies. The separation is slated to close in the first quarter of 2022.
Colfax believes its FabTech and MedTech operations will benefit from being able to pursue strategies tailored to their unique needs and markets.
CFX bolstered its MedTech business with the $3.15 billion acquisition of orthopedics company DJO Global, which closed in 2019.
More recently, CFX completed its $285 million purchase of diversified medical technology company Mathys AG Bettlach in July.
With those acquisitions and strategic plans in place, the Street is confident in Colfax’s ability to bounce back from a steep pandemic slowdown.
“Businesses have turned the corner after the COVID downturn and have returned to growth,” writes Stifel analyst Nathan Jones (Buy). “Fabrication Technologies is outperforming peers, and strong growth and incrementals in Medical Technologies are driving outsized earnings growth.”
Indeed, the company’s upturn in business and planned split led Bank of America U.S. Research to name CFX as one of its best mid-cap ideas for the second half of 2021.
Eleven analysts rate CFX at Strong Buy, two say Buy and three have it at Hold. However, one analyst says Sell and one calls Colfax a Strong Sell.
But a high-conviction consensus recommendation of Buy still makes CFX one of analysts’ top mid-cap stocks to buy now.
- Market value: $6.8 billion
- Dividend yield: N/A
- Analysts’ consensus recommendation: 1.78 (Buy)
II-VI (IIVI, $64.94) makes a wide variety of engineered materials and optoelectronic components, such as semiconductors and industrial lasers used by industries ranging from telecommunications to defense contractors.
The rollout of 5G wireless networks and growth of data centers to support cloud computing are just two of the tailwinds boosting results.
Analysts expect those cyclical trends to extend through 2021 and beyond, thanks to global economic growth.
Shares are off about 15% so far this year, hurt by industry-wide supply constraints and some uncertainty around the company’s pending acquisition of Coherent (COHR), notes Stifel analyst John Marchetti (Buy). IIVI in March inked a $6.3 billion deal to buy the laser-equipment maker.
Regardless, Stifel remains bullish.
“We continue to believe IIVI is well positioned to benefit from multiple long-term demand drivers even before their acquisition of Coherent further diversifies their business and strengthens their photonic capabilities,” Marchetti writes.
Investors need to maintain long horizons for IIVI to capitalize on all its growth opportunities, which also include next-generation automotive manufacturing, green energy and 3D sensing, analysts say.
But with shares trading at bargain levels, that patience should really pay off one day.
IIVI trades at less than 18 times analysts’ 2022 earnings estimate, per S&P Global Market Intelligence, and yet analysts forecast average annual earnings per share (EPS) growth of 15% over the next three to five years.
That’s why most of the pros following IIVI consider it among the best mid-cap stocks to buy right now.
Of the 18 analysts covering the stock tracked by S&P Global Market Intelligence, 10 rate it at Strong Buy, two say Buy and six call it a Hold.
- Market value: $6.1 billion
- Dividend yield: N/A
- Analysts’ consensus recommendation: 1.71 (Buy)
Lumentum (LITE, $79.83) is best known as the maker of 3D facial-recognition sensors for Apple’s (AAPL) iPhones.
But it is the firm’s lasers that power telecom networks and data center communications equipment that make it one of analysts’ best mid-cap stocks to buy now.
True, sluggishness in the 3D sensing segment is weighing on sentiment, but Lumentum is ultimately a play on the relentless growth of cloud-based services and build-out of 5G networks, says Jefferies analyst George Notter (Buy).
“Lumentum is a very high quality company with a long history of delivering critical component-level technology for high-performance applications,” Notter writes of the Jefferies Franchise Pick, a list of the firm’s best ideas for the next 12 months. “CEO Alan Lowe expects that we’re still in the bottom of the first inning for 5G network deployment.”
Raymond James analyst Simon Leopold likewise advises clients to keep the bigger picture in mind.
Although a deteriorating outlook for 3D sensing has LITE off about 15% year-to-date (YTD), the analyst rates shares at Strong Buy for the longer term.
Although “it will take time for the Street to settle 3D debates and re-build confidence,” Leopold writes, “Lumentum has a diversified portfolio of optical-oriented products that helps mitigate risk.”
Furthermore, management “chooses its battles carefully with a focus on profitability and technological leadership,” Leopold adds. “We envision double-digit growth and margin expansion.”
And then there’s the compelling valuation. The share-price decline has LITE trading at just 14.1 times the Street’s 2022 earnings estimate – and yet analysts forecast average annual EPS growth of 15% over the next three to five years.
The result? A consensus recommendation of Buy – 10 Strong Buy calls, two Buys and five Holds – that makes LITE one of the pros’ best mid-cap stocks to buy now.
- Market value: $10.2 billion
- Dividend yield: 0.9%
- Analysts’ consensus recommendation: 1.67 (Buy)
Federal tax reform and other issues have made master limited partnerships (MLPs) less popular than they once were, but tax-advantaged yields and hefty cash flows mean they can still be a great fit for some income investors.
And analysts think Targa Resources (TRGP, $44.40) is one of the best.
TRGP is one of the largest energy infrastructure companies delivering natural gas and natural gas liquids in the U.S. Analysts love its geographic footprint, its gathering and processing (G&P) segment and more.
“Overseas demand for natural gas liquids is a contributor to their price rise, and we see TRGP and its Gulf Coast infrastructure as very well placed to benefit from a trend we think continues to have secular drivers behind it,” writes CFRA Research analyst Stewart Glickman (Strong Buy).
Over at Raymond James, analyst J.R. Weston (Strong Buy) believes investors have yet to fully value the strength of TRGP’s asset base.
“We remain fans of the company’s Permian-heavy G&P and integrated footprints – and think these are still underappreciated by the market,” Weston writes.
And Stifel analyst Selman Akyol (Buy) notes that Targa Resources is a champ when it comes to generating free cash flow (FCF), which is the cash remaining after meeting financial obligations and capital expenditures.
“We view TRGP’s FCF generation profile as one of the most attractive in our midstream coverage,” writes Akyol. “TRGP’s natural gas and NGL focus in the Permian should remain resilient over the long term.”
Of the 21 analysts covering Targa Resources tracked by S&P Global Market Intelligence, 11 rate it at Strong Buy, six say Buy and four call it a Hold.
A consensus recommendation of Buy with high conviction easily places TRGP among the Street’s top mid-cap stocks to buy now.
- Market value: $8.7 billion
- Dividend yield: N/A
- Analysts’ consensus recommendation: 1.63 (Buy)
Shares in Ciena (CIEN, $56.45), which provides networking hardware, software and services, are typically volatile and thus far trailing the broader market by a wide margin this year.
But if investors can stomach the ride, they can expect big things from CIEN stock going forward, analysts say.
“After a period of underinvestment, customers’ core and metro networks are ‘running hot’ and facing capacity constraints,” writes Argus Research analyst Jim Kelleher (Buy).
“Ciena has won multiple new business awards, and customers are anxious to upgrade public networks, data centers and enterprise networks to accommodate rapidly growing traffic.”
At CFRA Research, analyst Keith Snyder rates the stock at Hold, citing the global pandemic’s drag on network deployment and expansions overseas, notably in India. However, the analyst adds that Ciena enjoys a defensible position in its industry and should see business continue to pick up.
“CIEN is benefitting from the scale and diversification of its supply chain and a high degree of vertical integration,” Snyder writes. “Activity with its Tier 1 service provider customers is beginning to pick up, especially in North America, as companies can no longer put off adding network capacity.”
Argus Research’s Kelleher singles out CIEN in particular as a buy-and-hold stock.
“For the long term, we expect Ciena to grow faster than the market based on the competitive power of its product suite,” Argus’ Kelleher adds.
“We also look for Ciena to benefit from geopolitical events that it is uniquely positioned to exploit, meaning the displacement of Huawei in Asian and other overseas carrier networks.”
Bulls are very much in the majority on the Street, where 10 analysts call CIEN a Strong Buy, six say Buy and three call it a Hold.
And the resulting high-conviction Buy recommendation earns CIEN a spot on the pros’ best mid-cap stocks list.
- Market value: $4.4 billion
- Dividend yield: 1.2%
- Analysts’ consensus recommendation: 1.56 (Buy)
Papa John’s (PZZA, $120.16) stock rose by more than a third last year, thanks to the way the pizza chain took advantage of a pandemic-fueled surge in demand for food delivery.
If investors were worried that tough year-over-year comparisons would be a headwind in 2021, well, those fears have thus far proven to be unfounded.
PZZA stock is up nearly 42% for the year-to-date and analysts see even more outperformance ahead.
If anything, Papa John’s has only built on the momentum it achieved during the lockdown days of 2020, notes BMO Capital Markets analyst Andrew Strelzik (Outperform).
“We expect PZZA to continue realizing accelerating unit growth, sustained same-store sales momentum, margin expansion and strengthening cash returns to shareholders over a multi-year time horizon,” the analyst writes in a report to clients.
Oppenheimer analyst Brian Bittner is equally bullish, noting that even after beating the S&P 500 by more than 23 percentage points year-to-date, “PZZA’s investment case remains in the early innings, and we reiterate PZZA as our top mid-cap pick.”
Bittner applauds changes to the pizza chain’s corporate culture and operational playbook since CEO Rob Lynch took the helm two years ago.
Stifel analyst Chris O’Cull similarly credits leadership in making his bull case for PZZA shares.
“Our Buy thesis continues to unfold – strong sales momentum combined with franchisees having greater confidence in the management’s plan and abilities leading to more appetite for unit growth,” says O’Cull in a client note.
Of the 16 analysts covering Papa John’s tracked by S&P Global Market Intelligence, 10 rate shares at Strong Buy, three say Buy and three have them at Hold.
Their consensus recommendation of 1.56 sits on the cusp of Strong Buy.
- Market value: $9.9 billion
- Dividend yield: N/A
- Analysts’ consensus recommendation: 1.55 (Buy)
Analysts are bullish on XPO Logistics (XPO, $86.70) following the company’s spin-off of GXO Logistics (GXO) in early August.
The move leaves XPO as a pure-play freight transportation company with services in 18 countries. GXO, meanwhile, is a pure-play contract logistics company offering outsourced supply chains and warehousing for customers in 27 countries.
Analysts like the way the spin-off affords XPO a number of strategic options going forward.
“The good news is there are a plethora of value creation opportunities at XPO, including the sale of the company’s European transport business, and we wouldn’t be surprised if it occurred sooner rather than later,” writes Deutsche Bank analyst Amit Mehrotra (Buy).
Oppenheimer analyst Scott Schneeberger (Outperform) likewise applauds the separation, and sees the company benefiting from easier year-over-year comparisons.
“An industry leader spanning key transportation and logistics categories, with its largest end-market being e-commerce/retail, XPO possesses an intriguing profit growth story,” Schneeberger says. “We anticipate progressively improving financial performance following a perceived second-quarter 2020 COVID-19-driven trough, and view the company’s spin-off of GXO Logistics as a value-enhancing event for the entire company.”
At UBS, analyst Thomas Wadewitz cites XPO’s “attractive” business mix and top-line momentum in making his Buy recommendation.
“XPO’s truck brokerage business has strong momentum as shown by the 100% year-over-year growth in second quarter 2021 gross revenue and 38% load growth,” Wadewitz writes.
Of the 20 analysts covering the stock tracked by S&P Global Market Intelligence, 13 rate it at Strong Buy, four say Buy and two rate it at Hold. One analyst has a Sell recommendation on the name.
- Market value: $14.7 billion
- Dividend yield: 0.9%
- Analysts’ consensus recommendation: 1.53 (Buy)
Signature Bank (SBNY, $254.49) stock is up more than 88% YTD and analysts think it’s just getting started.
Indeed, much of the Street falls over itself when describing why they love SBNY, a commercial bank catering to privately owned businesses, their owners and senior managers.
Bullish analysts also like that SBNY is one of the top U.S. banks serving institutional cryptocurrency clients, such as hedge funds, venture capital firms, custody firms and mining farms, notes CFRA Research analyst Garrett Scott Nelson (Strong Buy).
But it’s the totality of the commercial bank’s operations – and history of delivering peer-beating metrics – that the Street really swoons over.
“We continue to believe that Signature is an incredibly well-run bank with uniquely attractive growth characteristics that deserves a premium valuation,” writes Piper Sandler analyst Mark Fitzgibbon, who rates shares at Overweight (the equivalent of Buy).
Over at Wedbush Securities, analysts like SBNY enough to include it on their Best Ideas List.
“Our Outperform rating is based on the company’s consistently strong deposit and loan growth, leadership position in the [cryptocurrency] space, and strong earnings growth outlook,” writes analyst David Chiaverini (Outperform).
Meanwhile, Raymond James notes that record deposit growth in the most recent quarter sets the bank up for further outperformance in the months and years ahead.
“Signature is well positioned for post-pandemic success given its ability to produce excellent balance sheet growth, superior EPS growth and attractive profitability metrics,” writes analyst David Long (Strong Buy).
“As a result, we believe the shares deserve a premium valuation to most of its peers.”
With a consensus recommendation of 1.53 – 10 Strong Buy calls, eight Buys and one Hold – SBNY is easily one of the Street’s favorite mid-cap stocks to buy now.
- Market value: $8.8 billion
- Dividend yield: N/A
- Analysts’ consensus recommendation: 1.47 (Strong Buy)
A recent acquisition that beefed up an already diversified portfolio has analysts beating the drum hard for Jazz Pharmaceuticals (JAZZ, $144.63).
The biopharmaceutical company completed its purchase of GW Pharmaceuticals in May, which added Epidiolex to Jazz’s lineup of drugs.
Strong sales of the seizure medication helped JAZZ beat the Street’s second-quarter revenue forecast.
The firm is also enjoying success with Xywav, a narcolepsy drug approved by the Food and Drug Administration (FDA) last year, and Zepzelca, which targets small cell lung cancer.
Analysts are also bullish on the prospects for another drug in Jazz’s oncology portfolio – Rylaze, which received FDA approval in June of this year.
Between new drug launches and expanded indications for current drugs, analysts love the firm’s efforts to replenish and fortify its sources of top-line growth.
“Jazz is a unique biopharmaceutical company with distinct franchises in Sleep and Hematology Oncology that allow for both commercial and pipeline diversification,” writes Stifel analyst Annabel Samimy (Buy). “With all programs on track, we believe JAZZ will largely reach its diversification goal of 65% new product revenue by 2022.”
Jefferies analyst David Steinberg (Buy) highlights the success of Xywav, which “continues to impress eight months post launch,” as well as the “solid start for Epidiolex.”
Indeed, the analyst notes that management sees “blockbuster potential” for the narcolepsy drug Jazz acquired via the GW Pharma deal.
Jazz’s diversified and unique portfolio helps make it the first of our best mid-cap stocks to buy to score a consensus recommendation of Strong Buy, per S&P Global Market Intelligence.
Ten analysts rate it at Strong Buy, six say Buy and one has it at Hold.
The Street’s average target price of $209.82 gives JAZZ stock implied upside of about 45% over the next 12 months or so.
- Market value: $10.1 billion
- Dividend yield: N/A
- Analysts’ consensus recommendation: 1.23 (Strong Buy)
It’s no secret the housing market is red-hot right now, and that has analysts feeling extremely confident in Builders FirstSource (BLDR, $48.79).
The company, which manufactures and supplies building materials, manufactured components and construction services to professional homebuilders, has built itself up through small acquisitions over the years.
That’s paying off now amid a nationwide shortage of new homes.
Recent acquisitions include its $400 million purchase of Cornerstone Building Alliance in May, and a $450 million deal for WTS Paradigm, an industry software and services provider, in June.
It’s a good time to be bulking up, analysts say, given the tremendous economic tailwinds at the company’s back.
“New residential construction demand remains strong,” writes BMO Capital Markets analyst Ketan Mamtora (Outperform). “Labor and material shortages are driving increased adoption of BLDR’s higher margin and relatively stable value-added products. BLDR is one of our favorite names.”
B. Riley Securities sings much the same tune on Builders FirstSource.
“BLDR continues to be a meaningful beneficiary of strong housing demand, high commodity prices, internal actions to accelerate organic growth and control costs as well as M&A,” says analyst Alex Rygiel (Buy).
And over at Baird Equity Research, analyst David Manthey (Outperform) says the music doesn’t have to end anytime soon.
“We see a good multi-year outlook ahead as BLDR capitalizes on single-family construction tailwinds, realizes merger synergies, expands underlying margins and deploys ample free cash flow, while the shares look attractively valued,” Manthey writes.
Stifel analyst Stanley Elliott (Buy) offers perhaps the most succinct bull case on BLDR stock:
“The company is a best-in-class operator and will continue to grow and take market share on the other side of the virus.”
Of the 13 analysts issuing an opinion on BLDR, 10 call it a Strong Buy and three say it’s a Buy.
The resulting 1.23 rating equals a consensus recommendation of Strong Buy – and makes BLDR the Street’s top mid-cap stock to buy now.
All photos: Getty Images
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