10 Mid-Cap Stocks For Large-Size Gains: Part 1 by Chuck Carnevale, F.A.S.T. Graphs
Small and mid-sized companies are often overlooked by many or even most investors. That’s unfortunate, because there are many excellent investment opportunities that can be found in these equity classes. However, an argument could be made that between the small and mid-cap equity classes, the best and perhaps less risky investment opportunities are found in mid-caps.
Additionally, just as it is with every other equity class, there are many different types of mid-size companies with each possessing different features and characteristics. For example, the mid-cap universe contains many intriguing growth opportunities. On the other hand, the mid-cap universe also contains dividend paying companies of all categories. Investors can find high yielding mid-caps, moderate yielding above-average growing mid-caps, and everything in between. Simply stated, not all mid-caps are the same.
With this article I will be presenting interesting and attractively valued mid-sized companies for growth or total return. In part 2, I will be presenting mid-size companies for dividend income and dividend growth.
10 Mid-Cap Stocks
In preparation for this article I started by screening the S&P 400 mid-cap index looking for mid-cap growth stocks trading at fair, or better yet, attractive value. In addition to growth and value, I was also looking for quality and operating consistency. Although mid-size companies are technically more risky than blue-chip large-caps, they are not as risky as most small-caps. Nevertheless, I also put special emphasis and consideration on debt. However, there are two research candidates on the list that I consider too debt laden.
Utilizing my premium subscription to F.A.S.T. Graphs™ I literally conducted an earnings and price correlated review of all 400 constituents in the index. Much to my surprise, and just as it was with the small-cap index I covered in my previous article found here, I found very few mid-size companies that I was willing to present as attractive looking candidates for further research.
However, I was able to come up with 10 rather intriguing looking mid-size companies that were also attractive from a valuation perspective. On the other hand, the fact that I was only able to find a few mid-size companies that even appeared attractive should be carefully noted. In other words, I didn’t find a lot of value in quality mid-cap growth stocks today, just as I did not find a lot of value in small-caps.
Nevertheless, I offer the following 10 mid-cap research candidates listed in alphabetical order. The following portfolio review lists them by ticker, name, sector, credit rating, long-term debt to capital, market cap and the exchange they are traded on.
Since many readers may not be familiar with some of these mid-cap selections, I offer the following overview of each of the 10 research candidates. Courtesy of S&P Capital IQ I included a short business description on each, followed by a slide excerpt from each company’s corporate presentations and a link to the full presentation, if available. Additionally, I have provided earnings and price correlated historical F.A.S.T. Graphs™ on each with a calculated return forecast out to 2017 based on what I considered the most appropriate valuation reference line. Note: I have moved the estimated return calculation pop-up to the left corner of the graph so that it did not cover up important data listed in the FAST FACTS.
Finally, I offer a brief investment thesis based solely on what each F.A.S.T. Graphs™ reveals about valuation and earnings growth. I also want to be clear that I have not thoroughly researched each of these candidates. Therefore, they are offered as interesting mid-cap companies that readers might be desirous of looking deeper into.
AMC Networks Inc. (AMCX)
“AMC Networks Inc. engages in the ownership and operation of various cable television’s brands delivering content to audiences, and a platform to distributors and advertisers in the United States and internationally. The company operates in two segments, National Networks, and International and Other.
The National Networks segment operates five distributed entertainment programming networks under the AMC, WE tv, BBC AMERICA, IFC, and SundanceTV names in high definition and standard definition formats. This segment distributes its networks in the United States through cable and other multichannel video programming distribution platforms, including direct broadcast satellite and platforms operated by telecommunications providers.
The International and Other segment delivers entertaining and acclaimed programming services for subscribers in approximately 140 countries and territories, including Europe, Latin America, the Middle East, and the parts of Asia and Africa. This segment also operates in independent film distribution business that distributes films across various media platforms, including theaters, cable/satellite video-on-demand, DVDs and cable network television, and streaming/downloading to computers and other electronic devices.
The company offers movies and entertainment networks to approximately 390 million subscribers in 130 countries. AMC Networks Inc. was founded in 1980 and is headquartered in New York, New York.”
Investment Thesis: AMC Networks Inc.
My primary motivation for including this mid-cap was low valuation. Future long-term earnings growth is expected to average approximately 9% per annum. Consequently, I believe potential P/E ratio expansion could provide substantial returns over the next few years. My caveat would be the high debt to capital ratio.
ARRIS International plc (ARRS)
“ARRIS International plc provides media entertainment and data communications solutions in the United States and internationally. It operates through two segments, Customer Premises Equipment and Network & Cloud.
The Customer Premises Equipment segment offers various product solutions, including set-top boxes, gateways, digital subscriber lines and cable modems, and embedded multimedia terminal adapters and voice/data modems that enable service providers to offer voice, video, and high-speed data services to residential and business subscribers.
The Network & Cloud segment provides cable modem termination system, converged cable access platform, multichannel video programming distributors, programmer equipment, Ad insertion technologies, and equipment in the ground or on transmission poles, as well as equipment used to initiate the distribution of content-carrying signals.
This segment also offers technical support, professional services, and systems integration capabilities; software products that enable providers to deliver user experiences; multiscreen recommendations, offer management, and advertising services; network management products that collect information from the broadband network; and workforce management solutions enabling service providers to efficiently manage and dispatch field technicians, as well as network surveillance and issue correlation software and services.
The company was formerly known as ARRIS Group, Inc. and changed its name to ARRIS International plc in January 2016. ARRIS International plc was founded in 1969 and is headquartered in Suwanee, Georgia.”
Click here for full presentation, then click “ARRIS Investor Day 2016”
Investment Thesis: ARRIS International plc
I chose this mid-cap as a low valuation accelerating growth opportunity. The recent weakness in the stock price is attributed to what some analysts call as light 1st fiscal quarter guidance. However, according to S&P Capital IQ, company guidance for full year 2015 is for earnings of $2.45 – $2.60. If true, this augurs well for eventual P/E ratio expansion.
Centene Corporation (CNC)
“Centene Corporation operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured