7 Mid-Cap Stocks That the Market Has Gotten All Wrong
Investors have a lot to worry about these days. Is the economy in a recession? What is happening to the labor market? And when will the stock market recover? These questions are hard to answer, but investors can strategically buy mid-cap stocks. The best mid-cap stocks will help mitigate portfolio risk and unlock gains.
Mid-cap stocks are not as volatile as small-cap stocks, and they can move faster in rallies than large-cap stocks. The seven mid-cap stocks below are very attractive now both for short-term and long-term investing. They offer strong fundamentals, solid valuations and the potential to rally much higher.
| GOGL | Golden Ocean Group | $7.66 |
| IBA | Industrias Bachoco | $45.40 |
| UNFI | United Natural Foods | $36.34 |
| TMHC | Taylor Morrison Home | $24.34 |
| PCH | PotlatchDeltic | $40.74 |
| GT | Goodyear Tire & Rubber Company | $11.19 |
| AVT | Avnet | $36.75 |
Golden Ocean Group (GOGL)
Golden Ocean Group (NASDAQ:GOGL) is a shipping company that “owns and operates a fleet of dry bulk vessels comprising Newcastlemax, Capesize, Panamax, and Ultramax vessels worldwide.”
The stock is trading at a P/E ratio of 2.4x and it offers a forward dividend yield of 27%. This is a massive dividend yield to count on for passive income in times of great economic uncertainty.
The analysts have a 1-year estimate target of $50 or an upside potential of 13x. The company has a stable and positive free cash flow trend which is vital for a higher stock price.
Golden Ocean has the odds in its favor for a nice rally, creating a great buying opportunity on this list of mid-cap stocks. or this undervalued shipping stock.
Industrias Bachoco (IBA)
Industrias Bachoco (NYSE:IBA) is “a poultry producer in Mexico and the United States. The company operates in two segments, Poultry and Others.”
The stock has gained 8% in 2022 and is now a great value stock pick. The following key metrics support a highly undervalued stock.
IBA stock has a forward price-sales ratio of 0.5x and trailing price-book ratio of 0.9x. At the same time, the firm has solid sales growth, increasing 11.58% in 2020 and 18.76% in 2021. The free cash flow trend is exceptional — both positive and consistent.
The stock now trades at a low trailing P/E ratio of 7.1x and offers a forward dividend yield of 2.1%.
United Natural Foods (UNFI)
Next on this list of mid-cap stocks is United Natural Foods (NYSE:UNFI), a distributor of “natural, organic, specialty, produce, and conventional grocery and non-food products in the United States and Canada.”
One factor that is very bullish for UNFI stock is that the firm has generated positive free cash flows even when it reported net losses. As free cash flows are used in DCF models, positive and preferably higher free cash flows over time imply a higher valuation for the stock of United Natural Foods. This has happened as free cash flow in 2020 grew by 406.66% and by 7.04% in 2021.
The shares have a PEG GAAP ratio of 0.13x and a forward price-sales ratio of 0.07x. They are very cheap, so consider adding them now to your portfolio.
Taylor Morrison Home (TMHC)
Taylor Morrison Home (NYSE:TMHC) is a homebuilder in the United States with homes available for sale in Arizona, California, Colorado, Florida, Nevada and Texas. The firm is also offering home financing solutions.
The decline of 30% in 2022 makes TMHC stock a deep value stock to consider investing in now.
The business is growing and has gained momentum over the past two years, with a sales growth of 28.71% in 2020 and 22.38% in 2021. The stock is trading now at a very low trailing P/E ratio of 3.2x. This is the first indication that you can invest now in a very cheap stock.
It is good that other key metrics support this stock too. Take for instance its trailing P/S ratio of 0.4x and forward P/B ratio of 0.55x. These are signaling that TMHC is dirt-cheap stock now.
PotlatchDeltic (PCH)
PotlatchDeltic (NASDAQ:PCH) is a “Real Estate Investment Trust that owns approximately 1.8 million acres of timberland in Alabama, Arkansas, Idaho, Louisiana, and Mississippi.” Additionally, the company “operates six sawmills, an industrial-grade plywood mill, a residential and commercial real estate development business, and a rural timberland sales program.”
The good news to start with is that PCH stock offers a forward dividend yield of 4.4% and trades at a relatively low trailing P/E ratio of 7x.
This business generates strong sales with a very bullish trend, with higher net income growth than sales growth. This is the best-case scenario for a company. It is the definition of business success and top financial performance.
In 2020 and 2021 the sales growth reported was 25.85% and 28.48%, and the net income growth was 199.73% and 154.07%, respectively. The firm generates too much positive free cash flow, a catalyst for a higher stock valuation. After an explosive growth of 254.78% for free cash flow in 2020, PotlatchDeltic reported solid growth of 48.36% in 2021.
The Goodyear Tire & Rubber Company (GT)
The Goodyear Tire & Rubber Company (NASDAQ:GT) is a leading company selling tires.
This stock has crashed nearly 50% in 2022, but this is not a contrarian stock pick, it is a deep value stock. It is often said that a stock trading with a low P/E ratio may be a value trap. This is true if there is no growth, and the profitability is stagnant or weak. The stock has been depressed as Covid-19 hit the tire business, automotive factories closed and there was a severe disruption in the firm’s business operations. After two years of net losses in 2019 and in 2020, the company returned to profitability in 2021.
In 2021, net income soared 160.93% to $764 million and sales grew 41.86%. A very bullish factor is that even in the years of net losses, the company managed to generate positive free cash flow. A look at key metrics such as forward EV/Sales of 0.55x, forward P/S of 0.15x, and forward P/B of 0.56x shows how cheap GT stock is now.
The stock could roll in fast to higher price levels.
Avnet (AVT)
Avnet (NASDAQ:AVT) is a “technology solutions company” that “markets, sells, and distributes electronic components.”
Its sales growth is rather stable, which is not always a bad thing, as consistent sales are better than wild swings. The firm also generated positive free cash flow over the past four consecutive years.
A trailing PEG GAAP ratio of 0.02x, forward P/S of 0.194x, and EV/Sales of 0.21x all support a very cheap stock that can deliver exceptional, risk-adjusted returns. The key to successful investing is to find high-quality undervalued stocks to buy, and AVT is surely one of them.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
