Top Investors’ Stock Portfolio: 10 Mid-Cap Stocks To Buy
In this piece, we will take a look at Top Investors' Stock Portfolio: 10 Mid-cap Stocks To Buy. If you want to skip our introduction to mid-cap stocks and the stock market, then take a look at Top Investors' Stock Portfolio: 5 Mid-Cap Stocks To Buy.
Mid-cap stocks are typically large companies that have a market capitalization ranging from $2 billion to $10 billion. These firms are often sizeable entities with formidable balance sheets and often a global presence that enables them to diversify their revenue stream to remove region specific risks from their revenue and profit. The nature of their business model and their market capitalization range often makes mid-cap stocks quite lucrative from an investment perspective due to several advantages.
For instance, the well established business models and strong balance sheet proved to be a great asset for mid-cap companies during economic turmoil. This is because when an economy slows down, consumer and corporate spending power drops and feeds into each other as lower consumer spending depresses company revenues and low revenues mean either salary cuts or layoffs. In such a scenario, the larger the firm's customer base and market penetration is, the more stability it can hope to achieve as the large market means money continues to flow into its coffers even if it drops on an annual or a sequential basis.
Another benefit of investing in mid-cap stocks is their market value and share price. As opposed to mega cap giants such as Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) whose large value and expensive shares often prevent significant share price appreciation, the relatively lower prices for the mid-cap companies can often provide good returns provided the right catalysts are in place. At the same time, while small cap or micro cap stocks can also see market scams in the form of pump and dump schemes, the shares of mid-cap companies are also relatively insulated against this phenomenon since the share price is for the most part higher than the small cap stocks.
This enables mid-cap stocks to offer a balance between growth and stability which makes them quite suitable for investment purposes. Additionally, investing comes in all flavors, and one such flavor is dividends which is one of the lesser talked about benefits of investing in mid-cap stocks. Not all companies can afford to pay dividends, and the decision involves several factors. Dividends are paid out from after tax income, and should a firm decide not to pay them, then it typically reinvests the money for growth. Therefore, the decision to pay dividends is influenced by two factors, namely, a company's ability to generate significant net income to pay the dividends and the nature of its industry growth requirements.
So how do dividends and mid-cap stocks fit with each other? Well, one way in which investors evaluate dividend stocks is by calculating their yield. A stock's dividend yield is its dividend payout divided by the share price, and a higher yield means more bang for the buck in the form of dividend payouts. This area, the yield, is where mid-cap stocks shine as their relatively lower share prices compared to mega cap stocks often means that they are able to provide dividend investors with a higher yield.
As an illustration of this principle, consider the dividend yields of the top three companies with the highest dividend yields in our coverage of the 10 Best Mid-Cap Dividend Aristocrats To Buy. These companies are Bank OZK (NASDAQ:OZK), UGI Corporation (NYSE:UGI), and National Fuel Gas Company (NYSE:NFG), which had dividend yields of 4.2%, 4.1%, and 3.3% as of April 2023. For comparison, two of the largest mega cap tech stocks, namely Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:AAPL) have dividend yields of 0.54% and 0.92%, respectively, so it's clear that the top mid-cap stocks naturally offer a greater 'bang for the buck' when it comes to dividends. Additionally, if dividends are not your thing but you'd like to see which mid-cap stocks are the most profitable, we also took a look at some such companies during our 12 Most Profitable Mid-Cap Stocks Now coverage. In this list, the top three firms are Liberty Global plc (NASDAQ:LBTYA), Jackson Financial Inc. (NYSE:JXN), and Federal National Mortgage Association (OTC:FNMA).
Finally, if you're wondering about the outlook for mid-cap stocks, here's what Brown Advisory had to say about them in its MID-CAP GROWTH REVIEW AND OUTLOOK letter for the second quarter of 2023:
The strategy outpaced its benchmark, the Russell Midcap ® Growth Index, during the second quarter. Its largest contributors were generally growth-oriented companies (such as CoStar Group, Chipotle, and Trade Desk) that continue to post strong fundamental results, or technology companies exposed to the generative AI theme (such as Marvell). Despite the win in the quarter, the strategy mildly lagged its benchmark for the first half of the year, mostly due to cash drag in an energetic market, a couple conservative holdings (Bio-Rad and Dollar General) underperforming our fundamental expectations, and our underweight to momentum-oriented investments, which is typical given our approach.
In general, the market environment of the first quarter continued through the second quarter of 2023. Growth and momentum-oriented investments that struggled last year rebounded further through June despite the yield on the 10- year U.S. Treasury climbing 32 basis points (bps) as banking-crisis and recession fears ebbed. During the last three months, growth generally beat value while large-cap benchmarks mostly outpaced their small-cap counterparts, primarily driven by mega-cap tech (MSFT and AAPL each gained 18% in the second quarter, for instance).
So, which mid-cap stocks are worth it for a top investment portfolio? The top three on our list are IQVIA Holdings Inc. (NYSE:IQV), Arista Networks, Inc. (NYSE:ANET), and TransDigm Group Incorporated (NYSE:TDG).
Photo by Ruben Sukatendel on Unsplash
Our Methodology
For our list of the best mid-cap stocks, we ranked the top thirty companies part of the Vanguard Mid-Cap ETF by the number of hedge funds that had bought their shares as of Q2 2023. Out of these, the top ten mid-cap stocks are as follows.
Top Investors' Stock Portfolio: 10 Mid-Cap Stocks To Buy
10. MSCI Inc. (NYSE:MSCI)
Number of Hedge Fund Investors in Q2 2023: 51
MSCI Inc. (NYSE:MSCI) is a diversified financial services company that runs stock indexes, provides analytics services, and consolidates financial data from a variety of markets. The firm has beaten analyst EPS estimates in all four of its latest quarters and received an Outperform share rating from Oppenheimer in October 2023.
By the end of 2023's second quarter, 51 out of the 910 hedge funds part of Insider Monkey's database had held a stake in MSCI Inc. (NYSE:MSCI). Out of these, the firm's largest shareholder is Henry Ellenbogen's Durable Capital Partners since it owns 678,566 shares that are worth $318 million.
MSCI Inc. (NYSE:MSCI) joins Arista Networks, Inc. (NYSE:ANET), IQVIA Holdings Inc. (NYSE:IQV), and TransDigm Group Incorporated (NYSE:TDG) in our list of the top mid-cap stocks in hedge funds' portfolios.
9. Hess Corporation (NYSE:HES)
Number of Hedge Fund Investors in Q2 2023: 52
Hess Corporation (NYSE:HES) is an American oil and gas explorer and producer. Like MSCI, it has also beaten analyst EPS estimates in all four of its latest quarters. The firm's second quarter results saw its net income drop by a strong $548 million annually, even though production increased by 84,000 barrels of oil equivalent per day.
As of Q2 2023, 52 out of the 910 hedge fund holdings studied by Insider Monkey had owned the firm's shares. Hess Corporation (NYSE:HES)'s biggest hedge fund investor is Ken Fisher's Fisher Asset Management due to its $429 million investment.
8. D.R. Horton, Inc. (NYSE:DHI)
Number of Hedge Fund Investors in Q2 2023: 54
D.R. Horton, Inc. (NYSE:DHI) is one of the largest home builders in America, with operations in nearly three dozen states. The firm's shares have been under pressure during the second half of 2023 as high mortgage rates start to take their bite out of the home building industry.
After digging through 910 hedge fund portfolios for this year's June quarter, Insider Monkey discovered 54 hedge fund investors for D.R. Horton, Inc. (NYSE:DHI). Warren Buffett's Berkshire Hathaway is the largest shareholder among these since it owns $726 million worth of shares.
7. ON Semiconductor Corporation (NASDAQ:ON)
Number of Hedge Fund Investors in Q2 2023: 55
ON Semiconductor Corporation (NASDAQ:ON) is a chip company that provides power management, sensing, and other products to industries such as car manufacturing. A slowing semiconductor industry has not had major effects when it comes to the firm's financial performance since it has beaten analyst EPS estimates in all four of its latest quarters. ON Semiconductor Corporation (NASDAQ:ON) also expanded its product lineup in October 2023 when it announced a new imaging sensor lineup for cars.
During the second quarter of 2023, 55 hedge funds among the 910 tracked by Insider Monkey had held a stake in the chip company. ON Semiconductor Corporation (NASDAQ:ON)'s biggest stakeholder is D. E. Shaw's D E Shaw through its $204 million stake.
6. DexCom, Inc. (NASDAQ:DXCM)
Number of Hedge Fund Investors in Q2 2023: 58
DexCom, Inc. (NASDAQ:DXCM) is a specialized medical devices company that makes and sells glucose monitoring systems. It is the first stock on our list so far that has secured an average Strong Buy rating from analysts, and an average share price target of $141.94 prices in a $66 share price upside as well.
58 out of the 910 hedge funds part of Insider Monkey's Q2 2023 database were DexCom, Inc. (NASDAQ:DXCM)'s investors. Israel Englander's Millennium Management is the largest investor out of these, owning 1.9 million shares that are worth $244 million.
IQVIA Holdings Inc. (NYSE:IQV), DexCom, Inc. (NASDAQ:DXCM), Arista Networks, Inc. (NYSE:ANET), and TransDigm Group Incorporated (NYSE:TDG) are some top mid-cap stocks for a top investing portfolio.
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Disclosure: None. Top Investors' Stock Portfolio: 10 Mid-Cap Stocks To Buy is originally published on Insider Monkey.
