Now looks like a good time to consider undervalued mid-cap stocks. According to Franklin Templeton, the grouping of companies with market capitalizations between $2 billion to $10 billion is due for further improvement.
Large-cap firms rebounded strongly in 2023 following the pullback. The S&P 500 Large Cap Growth Index was up more than 21% through the first half of 2023. Meanwhile, a comparable mid-cap index was up a much more modest 10.44% during the same period. Signs are also emerging that the markets are beginning to discount the recovery. In such instances, capital tends to flow back into small and mid-cap firms. These factors indicate that undervalued mid-cap firms should rebound nicely moving forward.
Undervalued Mid-Cap Stocks: Essential Utilities (WTRG)
Essential Utilities (NYSE:WTRG) is a mid-cap water utilities firm in Pennsylvania. The firm provides water, wastewater, and natural gas to its customers. It’s also arguably undervalued but has lots of potential.
It’s undervalued as part of a broader class of capitalization that has historically been discounted in the current climate. Further, it’s a utility, and utility stocks have underperformed this year. There’s also a reasonable argument that capital will also flow into the sector as a sort of readjustment. That argument has to do with bond yields and the relative unattractiveness of utilities because bond yields are so high. Utilities firms are go-to income sources in lower bond yield environments. Thus, they could come back into season.
Anyway. Essential Utilities makes sense for those reasons. Its fundamentals are also strong. The firm reported record net income in the second quarter of $91.3 million and EPS increased from $0.31 to $0.34.
Darling Ingredients (DAR)
Darling Ingredients (NYSE:DAR) produces various ingredients, including fats and proteins, gelatin and meat casings, and meat byproducts among other things.
The firm’s fundamentals are a great place to start in understanding why it’s a buy at the moment. At. the moment, the firm is undervalued judging by the target price of $90 assigned to it and its current price of $58. In addition, Darling Ingredients’ second-quarter sales reached $1.8 billion, up from $1.7 billion a year prior. That’s a modest increase but the company was able to derive other fundamental growth from that. Net income increased from $202 million to $252.4 million during the same period. Diluted earnings-per-share (EPS) increased to $1.55 from $1.23.
That performance allowed the company to reaffirm prior EBITDA guidance for the full fiscal year. Thus, there’s little reason to believe that DAR shares should fall and every reason to believe they should rise.
Undervalued Mid-Cap Stocks: Five Below (FIVE)
Five Below (NASDAQ:FIVE) opened 67 new stores in H1, up from 62 in the same period in 2022. Sales increased by 13.5% and net income by a very similar 13.3%. If there’s a problem with Five Below it’s that the company has had to adjust its earnings outlook because of increasing shrink reserves. In other words, Five Below has had to adjust earnings downward because of theft.
The firm’s sales outlook is unchanged. It’s growing, and profitable, and its overall trajectory is worth investing in. Hopefully, the firm can find ways to control theft moving forward because it’s unfair to all parties that suffer as a consequence.
Aramark (NYSE:ARMK) is a boring company, providing food, uniforms, and facilities, especially for the institutional sector. At the moment, Aramark shares trade for $36 and are valued at $45 by Wall Street. That equates to a 25% upside. However, it gets better because Aramark pays a quarterly dividend of 11 cents. That adds an additional 1.2% return to the investment. It’s very clear that Aramark can produce nice returns for those willing to direct their capital to its shares.
The firm continues to grow steadily and saw a sales bump of 15% in the most recent quarter. Adjusted earnings rose by 34% and the company repaid $630 million of debt. The positive results allowed the firm to increase its guidance for the year suggesting that factors are conspiring in its favor.
Undervalued Mid-Cap Stocks: SoFi Technologies (SOFI)
The narrative surrounding SoFi Technologies (NASDAQ:SOFI) stock is turning in favor of the company in late 2023. It has been one of the firms that has suffered the most during the pandemic. The company holds a lot of student loans, roughly 30% of its lending holdings.
Demand for refinancing of those loans has stagnated due to the moratorium on federally held student loans. Almost no one in that situation was interested in refinancing their loans with SoFi privately because that would result in immediate payments. Further, many of those holders were banking on forgiveness or an extension of the moratorium. Neither of those things happened.
As a result, SoFi is likely to see a spike in its student loan portfolio holdings. A lot of people will refinance with them soon.
The company is already growing quickly and saw revenues increase by 37% and skyrocketing EBITDA figures. The firm added a bunch of new members and sold even more new products to already existing members. It’s a one-stop shop method of finance that may be starting to take off at SoFi.
Texas Roadhouse (TXRH)
Texas Roadhouse (NASDAQ:TXRH) is in a position to benefit from a combination of positive factors that should propel its shares higher. Investors have to look at stocks in relation to cyclicality. Cyclicality determines a lot. In the case of Texas Roadhouse that means identifying the positive cycles that favor it. Mid-cap stocks are in a strong position as large-cap investment wanes. And restaurant spending is back after suffering due to the pandemic.
Revenue and net income are up 14.3% and 13.6% in Q2, respectively, and by 16.6% and 14.3% in the first half of 2023. Texas Roadhouse is in a position to provide quick returns to investors because of its strong performance and undervalued price.
Oshkosh (NYSE:OSK) is primarily known as a specialty vehicle manufacturer in the defense industry but it’s much more than that. The firm’s access and vocational business segments actually provide greater revenues than does its defense segment. Overall, Oshkosh remains strong. Sales increased by 17% to $2.41 billion in the second quarter. The company also boasts a $15 billion backlog that promises to keep the company busy through 2024.
The company provides equipment to airports and recently acquired JBT Aerotech to bolster its lift and gate equipment overall.
Beyond that, readers may recall that Oshkosh won the contract to electrify the Postal Service fleet not long ago. Oshkosh will deliver an initial order of 50,000 next-generation delivery vehicles to the post office worth $2.98 billion. The size of the order could more than triple to 165,000 vehicles in the next decade and represents a massive opportunity for the firm overall.
On the date of publication, Alex Sirois 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 biedexmarkets.com.com Publishing Guidelines.