5 Strong Midcap Stocks That Offer Value And Growth
Stocks are in a more volatile mood than what we’ve been used to in recent years, yet they are still trading close to all-time highs. As a result, one of the questions many investors find themselves asking is whether there are reasons to buy anything at these levels at all.
I addressed some of the problems with the “buy low, sell high” attitude in this article — namely that it can prevent you from taking action and buying a solid stock that just so happens to have been on a nice run.
The same attitude holds when thinking about “value.”
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With this in mind, I went in search of potentially “buyable” stocks — those that present pockets of value in this market. Not “value” in the traditional sense of the word, of course. Stocks with low price-to-earnings ratios (P/E) are of little interest to us over at Fast-Track Millionaire. The high-growth stocks we look for are not likely to have a low P/E (that is, a P/E that’s lower than the market’s) — and many won’t have any P/E at all. That’s because the young, growing companies at the forefront of their industries often don’t have any earnings yet. Or, if they do, they might trade at high P/Es — which reflect the market’s confidence in strong growth for those companies.
Let’s Find “Value” Disguised As Growth Stocks
Hence, to find “value” as it pertains to our objectives, I screened for indications of strong growth. This time, I used two separate factors for this part of the search: per-share earnings growth of 25% and more, as well as next-year earnings estimates (also at 25% or higher).
In addition, in order to weed out the smallest companies (where estimates of future growth might be limited, due to a small number of analysts following these companies), I have limited this search to stocks trading on the Nasdaq and which qualify as mid-caps (market capitalizations between $2 billion and $10 billion).
As yet another measure of “value,” I selected only those stocks whose average analyst rating is a “Buy” or better.
Next, I looked for companies trading within 10% of their 52-weeks high and also trading above their respective 200-day moving averages.
Finally, to weed out those companies that look overbought (and therefore might be ready to pull back), I screened for relative strength, which compares the performance of a stock to the overall market. Only stocks with a relative strength index reading of less than 60 (one of the commonly accepted “overbought” technical metrics) made the cut.
Five stocks made the grade. Here’s the list, sorted by average analyst rating…
1. The best-rated (and also the smallest) company is NeoGenomics (Nasdaq: NEO), a genetic-test company. It operates a network of cancer-focused genetic testing laboratories in the United States and also has laboratories in Switzerland and Singapore. Out of nine recommendations, seven analysts rate it a “Buy” and two “Outperform.” Expected long-term (five years) earnings growth is 20%; already profitable, NEO is likely to be a strong candidate in a somewhat crowded field of genetic testing companies.
Perhaps not surprisingly, the rest of the companies in today’s screen are classified as information technology (IT) companies.
2. Out of the 16 analysts that follow Paylocity (Nasdaq: PCTY), which makes cloud-based payroll and human capital management software, eight rate it a “Buy,” four rate it “Outperform” and four analysts consider it a “Hold;” on average, they expect a 23% long-term growth pace for this cloud company.
3. Just as with PCTY, Israel-based Wix.com (Nasdaq: WIX) is already profitable. Eleven analysts rate it a “Buy,” three rate it “Outperform,” four consider it a “Hold” — and one rates it a “Sell.” The expectations call for a 23% long-term growth pace for this internet service company. Formerly known as Wixpress, Wix.com is in the business of helping its customers create Web content. It offers three products: Wix Editor, a drag-and-drop visual development and Website editing environment platform; Wix ADI, which enables users to create a Website for their specific needs, and Wix Code for website and web applications development.
4. Public only since October 2017, MongoDB (Nasdaq: MDB), a database company, had a strong debut (its shares advanced by more than 30% on the day of the IPO), and the stock has been strong ever since. The company offers a service called MongoDB Enterprise Advanced, a subscription package for enterprise customers to use in the cloud, on-premise, or in a hybrid environment, MongoDB Atlas, a cloud-hosted database-as-a-service product, and Community Server, a free-to-download version of its database.
MDB isn’t profitable yet — and it’s not expected to make money for another couple of years. Still, more than half of the analysts that follow the stock rate it a “Buy” or “Outperform” (six and two, respectively). Six analysts rate it a “Hold” and one has a “Sell” rating on the shares.
5. Cornerstone OnDemand (Nasdaq: CSOD), a cloud company, provides learning and human capital management software through the software-as-a-service business model. Already profitable, it’s also the company with the slowest expected long-term growth (14%). Out of 11 analysts, four rate it a “Buy,” two rate it “Outperform,” four consider it a “Hold” and one has an “Underperform” rating on the shares.
Action To Take
As is typical in the screening process, today’s results call for further research. They are not official “buy” recommendations for Fast-Track Millionaire subscribers, and they shouldn’t be for you either without doing your homework.
Still, a couple of these companies stand out: NeoGenomics and MongoDB.
These two stocks have been the best-performing ones of the group over the past year and seem to have the best momentum as a result. Moreover, both have something special to offer. NEO is different from many of its genomic testing peers because of its focus on laboratory service, not just selling tests. And MDB has the distinction of owning the increasingly popular — and growing — database software services; as the world creates and processes more data, databases will continue to grow in complexity and importance.
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