Deep Dive: Top stock picks for 2020: Making money with midsize firms

Deep Dive: Top stock picks for 2020: Making money with midsize firms

11 Dec    Finance News

(This is the second 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.)

This has been an excellent year for U.S. stocks across the board. That said, investors who wish to be truly diversified need to look beyond the large-cap companies that dominate financial headlines.

The S&P 400 Mid Cap Index MID, +0.03% has returned 23% this year, with dividends reinvested, through Dec. 9. That trails the 27.5% of the large-cap S&P 500 SPX, +0.16% but is ahead of the 20% return for the S&P Small Cap 600 Index SML, +0.00%.  

Here are a few longer-term performance comparisons for the three indexes, underlining the importance of diversification.

Over the past five years, the S&P 500 has been the best performer among the three:

FactSet

Going back 10 years, the small-caps take the prize:

But if we go back 15 years — including the boom-and-bust cycle leading through the 2008 financial crisis — the mid-cap index is the best performer of the three:

If you are a typical index-fund investor, you might have a lot of your retirement nest egg in a low-cost S&P 500 Index fund, such as the Vanguard 500 Index fund VFIAX, -0.11%  or the SPDR S&P 500 ETF Trust SPY, +0.05%. But the large-cap index may not be as diversified as you think. The largest five companies in the S&P 500 — Apple AAPL, +0.38%, Microsoft MSFT, -0.40%, Alphabet GOOG, -0.04% GOOGL, -0.05%,  Amazon AMZN, +0.05%  and Facebook FB, -0.03%  — make up 18% of the S&P 500’s market capitalization, while the largest 10 make up 26%.

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So you can be more diversified by expanding your index horizons. The Vanguard S&P Mid-Cap 400 ETF IVOO, -0.07%  is one way of doing so.

Analysts’ favorite stocks among the S&P 400

Here are the 20 S&P 400 Mid Cap stocks covered by at least five sell-side analysts with 75% or more “buy” or equivalent ratings that have the highest 12-month upside potential implied by consensus price targets:

Company Ticker Share ‘buy’ ratings Share neutral ratings Share ‘sell’ ratings Closing price – Dec. 9 Consensus price target Implied 12-month upside potential Total return – 2019 through Dec. 9
Ligand Pharmaceuticals Inc. LGND, -0.03% 100% 0% 0% $105.79 $196.20 85% -22%
InterDigital Inc. IDCC, +0.85% 100% 0% 0% $53.13 $92.60 74% -18%
Etsy Inc. ETSY, +0.59% 88% 6% 6% $41.16 $66.07 61% -13%
Matador Resources Co. MTDR, +0.20% 75% 25% 0% $14.93 $22.15 48% -4%
SLM Corp. SLM, +0.93% 92% 8% 0% $8.67 $12.33 42% 6%
WPX Energy Inc. WPX, +0.28% 91% 9% 0% $10.59 $15.01 42% -7%
Ciena Corp. CIEN, +0.84% 76% 19% 5% $34.61 $48.95 41% 2%
II-VI Inc. IIVI, +1.84% 75% 25% 0% $29.50 $40.50 37% -9%
Aaron’s Inc. AAN, -0.98% 90% 10% 0% $58.65 $79.50 36% 40%
Dycom Industries Inc. DY, +1.48% 78% 22% 0% $46.38 $60.50 30% -14%
World Wrestling Entertainment Inc. Class A WWE, -0.10% 87% 13% 0% $62.69 $80.50 28% -16%
Adtalem Global Education Inc. ATGE, -0.56% 80% 20% 0% $33.46 $42.80 28% -29%
MasTec Inc. MTZ, +0.66% 85% 15% 0% $62.02 $77.08 24% 53%
Ollie’s Bargain Outlet Holdings Inc. OLLI, +16.59% 77% 23% 0% $60.23 $73.38 22% -9%
Boyd Gaming Corp. BYD, +0.86% 93% 7% 0% $29.00 $35.00 21% 41%
LiveRamp Holdings Inc. RAMP, -0.73% 80% 10% 10% $49.36 $59.56 21% 28%
Sterling Bancorp STL, +0.44% 91% 9% 0% $20.51 $24.73 21% 26%
Penumbra Inc. PEN, -0.38% 100% 0% 0% $161.13 $193.40 20% 32%
SolarEdge Technologies Inc. SEDG, +0.91% 75% 25% 0% $82.84 $98.67 19% 136%
Catalent Inc. CTLT, +0.27% 100% 0% 0% $52.06 $61.88 19% 67%
Source: FactSet
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You can click on the tickers for more information about each company.

It is interesting to see that half of these stocks are down this year, while 12 have underperformed the S&P 400 Mid Cap Index. Mark Hulbert explained that the worst stocks in a given year tend to rebound the following year.

Don’t miss: These are the 20 best-performing stocks of the past decade, and some of them will surprise you

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