Wall Street started 2019 with a lot of vigor, quickly erasing the loss it suffered in 2018. The U.S. economy is in good shape and the Fed has decided to practice patience on rate hike. Inflation is also under the 2% benchmark of the central bank. However, of late, investors are highly concerned about an impending breakdown of U.S.-China trade negotiations that will hinder global economic growth.
Meanwhile, mid-cap stocks have rallied in 2019 so far. The S&P 400 Mid-cap Index (SP400) has surged 16.2% year to date. At this stage, when the market is uncertain about a trade deal, investment in mid-cap stocks should prove to be prudent.
Uncertainty About Trade Deal
Trade-related conflict between United States and China, which was a major reason for the stock market meltdown in 2018, appeared to be heading for an amicable solution from the beginning of this year.
However, all of a certain, the situation changed after President Donald Trump tweeted on May 5 that the U.S. government will increase tariffs from 10% to 25% on $200 billion of Chinese goods effective May 10. Moreover, Trump also threatened to impose 25% tariff on additional $325 billion of Chinese goods any time soon.
U.S. officials are accusing China of “erosion of commitments” and backtracking on promises made during the negotiation process. Though a Chinese delegation led by vice premier Liu He will visit Washington for the latest round of trade talk later this week, the possibility of a deal is still uncertain.
Lingering trade tensions between the two largest trading nations of the world and escalation of a fresh round of tariff war between these two countries will slow down global economic growth and have disastrous effect on the emerging economies.
Wall Street Loses Momentum
As trade war concerns resurfaced, volatility returned to Wall Street. The three major stock indexes – the Dow, S&P 500 and Nasdaq Composite – have lost 2%, 2.3% and 2.7%, respectively, so far this week. However, indexes are firmly in the positive territory year to date.
Why Mid-Cap Stocks?
Investment in mid-cap stocks is often recognized as a good portfolio diversification strategy. These stocks combine attractive attributes of both small and large-cap stocks. If the trade deal breaks down, mid-cap stocks will be less susceptible to losses than their large-cap counterparts owing to less international exposure.
However, if the trade deal finally sees the light of the day, these stocks will gain higher than small caps due to established management teams, broad distribution network, brand recognition and ready access to capital markets.
5 Stocks Moving Higher
The recent trade-related concerns have not however stalled the market’s growth entirely. We have been able to narrow down our search to five mid-cap stocks, which have moved higher and still hold potential. All five stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Strategic Education Inc. STRA provides a range of post-secondary education and other academic programs in the United States. The company operates through three segments: Strayer University, Capella University, and Non-Degree Programs.
Both Strayer and Capella Universities have been exhibiting stellar enrollment results. Stayer and Capella University’s educational programs are specifically designed to meet the educational needs of working adults in targeted professions. Both the universities’ convenient, accessible and flexible educational programs are specifically designed to meet the educational needs of working adults.
The stock has surged 48.5% year to date. The company has expected earnings growth of 36.2% for the current year. The Zacks Consensus Estimate for the current year has improved 7.1% over the last 30 days.
Rent-A-Center Inc. RCII is the largest rent-to-own operator in the U.S. offering durable goods such as consumer electronics, appliances, computers, furniture and accessories. The company operates through four segments: Core U.S., Acceptance Now, Mexico, and Franchising.
The company’s Acceptance Now business model is gaining traction as it enhances consumers’ shopping experience. When the consumer is denied credit financing for a particular product from the retailer, Rent-A-Center under its Acceptance Now program acquires that product from the retailer and offers it to the consumer under a rental-purchase transaction.
The stock has surged 62.2% year to date. The company has expected earnings growth of 80.2% for the current year. The Zacks Consensus Estimate for the current year has improved 1.6% over the last 30 days.
EMCOR Group Inc. EME is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, as well as building services for a diverse range of businesses. EMCOR’s prospects in non-residential markets remain quite impressive, which will likely help it to secure more mid-sized large projects going forward.
The U.S. Construction segment has been maintaining strong momentum. The company’s major segments, primarily the U.S. Mechanical and Electrical Construction segment, continued to display significant strength. This is being driven by higher project activity within the health care, commercial and transportation markets.
Year to date, the stock has surged 36.9% year to date. The company has expected earnings growth of 11% for the current year. The Zacks Consensus Estimate for the current year has improved 3.8% over the last 30 days.
Lithia Motors Inc. LAD is one of the leading automotive retailers of new and used vehicles, and related services in the United States. The company operates through three segments: Domestic, Import, and Luxury.
Lithia Motors is benefiting from the expansion of business through acquisitions and store openings. This is driving the company’s customer base and revenues. During 2018, it acquired two large platforms in the Northeast of the United States, two small complementary platforms and a new point in Texas.
The stock has surged 49.2% year to date. The company has expected earnings growth of 10.9% for the current year. The Zacks Consensus Estimate for the current year has improved 8.1% over the last 30 days.
Group 1 Automotive Inc. GPI is one of the leading automotive retailers in the world. Apart from selling new and used vehicles, it offers vehicle financing and insurance and service contracts. Further, the company provides maintenance and repair services, along with sale of replacement parts and aftermarket automotive products.
Group 1 Automotive regularly acquires and divests dealerships and franchises to expand its business. In 2018, the company acquired 17 franchises, which are likely to generate annual revenues of $615 million. In January 2019, the company opened Porsche of El Paso in Texas, which is anticipated to accrue $25 million in annualized revenues.
The stock has surged 49% year to date. The company has expected earnings growth of 12.7% for the current year. The Zacks Consensus Estimate for the current year has improved 10% over the last 30 days.
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