(This is the third in a three-part series listing highly rated stocks that sell-side analysts expect to rise the most over the next 12 months. Part 1 covers large-cap stocks and Part 2 covers small-caps.)
Mid-cap stocks tend to fall through the media-coverage cracks. The notion of a medium-size company seems less exciting than a small up-and-comer or a tech giant.
Then again, mid-caps have performed well this year. Below is a list of 20 stocks drawn from the S&P 400 Mid Cap Index that analysts expect to rise the most over the next 12 months.
Michael Brush interviewed Jim Paulsen, market strategist and economist at the Leuthold Group, and they identified several reasons why small- and mid-cap stocks can be expected to improve their performance, relative to large-caps.
The mid-cap and small-cap groups were hit much harder than the S&P 500 during the initial COVID-19 lockdowns in March. All three indexes rebounded, with the mid-caps in the middle of the pack.
During a bull market in which many large tech-oriented companies are continuing to grow sales by double digits, it is not a surprise to see the large-cap index performing best. One important reason for that is the S&P indexes are weighted by market capitalization. The five largest companies in the S&P 500 make up 22.7% of the index. In comparison, the five largest companies in the S&P 400 Mid Cap Index have a 9.4% weighting.
Of course, if you look at individual stocks, it doesn’t matter what the trends of cap-weighted indexes may be. MarketWatch’s Jeff Reeves recently argued that some mid-cap companies are in a sweet spot — large enough to have well-established businesses, but small enough to be able to take advantage of changing market conditions. He singled out five mid-cap stocks.
Analysts’ favorite mid-cap stocks
Here are the 20 stocks included in the S&P 400 Mid Cap Index with at least 75% “buy” ratings with the most upside potential over the next 12 months implied by analysts’ consensus price targets:
Analysts expect shares of Ligand Pharmaceuticals
to nearly double over the next year. The company’s stock has pulled back by 11% in 2020, even though analysts polled by FactSet expect its full-year revenue to increase by 43% to $170 million in 2020 on the strength of Captisol, a medication that’s used along with remdesivir (developed by Gilead Sciences Inc.
) to treat patients suffering from COVID-19. The analysts expect Ligand’s sales to increase by another 69% to $289 million in 2021, followed by a decline to $218 million in 2022.
The best performer on the list this year has been Emergent BioSolutions
with a total return of 55% through Dec. 11. During the third quarter, the company began Phase 3 trials of hyperimmune globulin medications that may potentially be used to great COVID-19 patients. Analysts expect Emergent’s revenue for 2020 to increase by 38%, followed by an increase of 23% in 2021 and a decline of 20% in 2022.
Here are sales-growth estimates for the entire group for calendar years through 2022:
Taylor Morrison Home Corp.
is expected to increase sales by 24% in 2020, followed by an increase of 22% in 2021 and 7% in 2022. Another homebuilder expected to benefit from elevated home sales brought about by movement away from large cities and low interest rates include TRI Pointe Group
which is expected by analysts to increase sales 16% in 2021, followed by a revenue decline of 3% in 2022.
Shares of LendingTree
which offers loan products and other financial services, are down 10% this year, and its 2020 revenue is expected to drop 19% because of a decrease in consumer loan demand, including student loans. Revenue is expected to rebound by 20% in 2021 and increase 17% in 2022.