It looks like 2019 will shape up to be a “Goldilocks” economy — not too hot, and not too cold, leaving stocks just right.
After a blazing start to the year, everyone on the Street has been expecting earnings to tail off as 2019 ages. This isn’t a surprise. The December 2017 tax cuts were a significant boost to corporate earnings in 2018. Whether companies used the extra money to pump up earnings by increasing stock buybacks or expanding their spending, it kept stocks humming up until Q4.
That’s when analysts started to realize that there wasn’t going to be any more goodies in 2018’s Christmas stocking and that consumers could only spend so much.
Plus, all those good times kept the Federal Reserve on their anti-inflation mission, so things were looking bleak. But when the Fed reversed course and softened its stance, the market celebrated 2018’s version of 2017’s tax cut.
But this year will ultimately favor stocks that are built to succeed in a mild-growth economy. These seven mid-cap stocks do best in the kind of slow-growth conditions we’re in right now.
All these are A-rated momentum picks by their quantitative grade in my Portfolio Grader now, so they’re all setting up for a strong year.
Mid-Cap Stocks to Buy: ZTO Express (Cayman) Inc ADR (ZTO)
ZTO Express (Cayman) Inc ADR (NYSE:ZTO) is a China-based logistics firm that is listed in the U.S.
The easiest way to understand what ZTO represents in China is to think about FedEx (NYSE:FDX) or UPS (NYSE:UPS) in the U.S. market. ZTO has that kind of reach in China. And one of its biggest customers is ecommerce giant Alibaba (NYSE:BABA). If you think Amazon (NASDAQ:AMZN) plays a big part among U.S. logistics companies, the Alibaba-ZTO combo is just as powerful.
Recently, ZTO has been hurt by slow growth in China. But that is waning, and all signs are pointing to Chinese consumers and the economy getting back in step.
Also, ZTO’s recent earnings are very encouraging. This is a solid choice if you’re looking to invest in the Chinese economy.
PerkinElmer (NYSE:PKI) is a life sciences company that dates back to 1937. Essentially, it builds laboratory equipment that can be used across a number of industries for product development, discovery and quality control. Its diversified client base and long reputation for quality products makes it a go-to company for life sciences technology.
Domestically, one of the new sectors where its equipment is already seeing demand is in the exploding cannabis and CBD sector. Developing consistent, high-quality products as production scales up is crucial for market entrants that want to grow.
Outside the North America, PKI equipment is a popular choice in China as it ramps up healthcare spending and is focused on modernizing its homegrown industries.
Lennox International (LII)
Source: Aidan via Flickr (Modified)
Lennox International (NYSE:LII) sells a very welcome product, especially in the Southern U.S.
The joke in the South is, civilization became sustainable in the South when air conditioning was invented. So, it’s no surprise that LII, which was founded in 1895, hangs its hat in Texas.
Today, LII builds residential and commercial HVAC (heating, ventilation, air conditioning) systems and has a global distribution network in place. One of its big international opportunities is in India, where it has established a strong footprint, especially building out local HVAC technology teams.
With the U.S. economy expanding and low interest rates available to businesses and individuals, new sales should be solid moving forward.
Micro Focus International PLC (ADR) (MFGP)
Micro Focus International PLC (ADR) (NYSE:MFGP) is a UK-based tech company that has been around since 1976. It bought Hewlett Packard Enterprise’s (NYSE:HPE) software business in late 2017 and has been struggling to digest it for a while. But those troubles seem over.
Basically, MFGP creates bridge software that works with enterprise-level systems to boost the security, effectiveness and efficiencies of existing software platforms with emerging technologies.
This is a huge issue with governments or large corporations that can’t continually upgrade hardware for thousands of workers — which means those organizations’ ability to upgrade software is also hampered.
These challenges become significant as technology advances and these systems are expected to do more with increasing levels of security. This niche is vital, and the fact that MFGP is working on both sides of the Atlantic is also a great competitive advantage.
Jacobs Engineering Group (JEC)
Source: Born1945 Via Flick
Jacobs Engineering Group (NYSE:JEC) is an engineering company based out of Dallas, Texas. But its reach is global, and it does all sorts of big projects, especially government buildings and infrastructure.
Now, this certainly isn’t the sexiest work out there, but the fact is it’s solid, consistent work. That’s what a lot of mid-caps are about. They have a niche they’ve developed for many years and they have scaled it up to build a very respectable book of business without leveraging the company or rolling the dice on some big idea.
Slow and steady wins the race.
One of its big global focuses is in India. Watching China grow from an agrarian society into the second-largest economy in the world in a matter of a few decades has been a competitive challenge for India to mirror that success. One of the keys to getting there is upgrading the infrastructure. JEC stock will certainly benefit.
Steris (NYSE:STE) is a healthcare equipment and services company that is based in Ohio but over the years has expanded and acquired businesses around the globe.
Currently, STE has 12,000 employees in more than 100 countries, particularly in the U.S. and Europe. But in recent years, it has been building out its operations in Asia, which should be a key growth driver in coming years.
STE’s specialty is procedures and equipment that help prevent infection or contamination of manufacturing equipment, patients or sterile environments. In the U.S., this kind of technology is crucial to lowering healthcare costs. In an Asian country like China, this niche is important in bringing its healthcare system up to modern standards for its 1.4 billion people.
The point is, there’s plenty of upside here, but it’s likely to be slow and steady, not parabolic. Still, steady, long-term growth is a great thing for any portfolio.
Pinnacle West Capital (PNW)
Source: Robert via Flickr
Pinnacle West Capital (NYSE:PNW) essentially is a holding company for Arizona Public Service, which is a utility that provides electricity to more than 1 million Arizona residents and businesses.
It has built a storied past, and the worst of its days are decades behind it at this point. And now it is also has a solid unregulated business to go along with its regulated one. Its Bright Canyon Energy subsidiary is focused on transmission infrastructure in Western states. This is going to be crucial as alternative energy resources come online and older equipment needs to be replaced or upgraded.
Plus, PNW delivers a solid 3.1% dividend — and that’s after an impressive 22% run in the past 12 months.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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