3 Top Mid-Cap Stocks to Buy Right Now
Mid-cap stocks can often represent a great place to go hunting for an investment. Companies in that range are larger -- and thus often financially more stable -- than small-cap stocks, while still being small enough to typically have plenty of growth runway ahead of them. In addition, mid-cap stocks often have fewer Wall Street analysts following them than bigger businesses do, making those mid-caps more likely to be available at bargain prices than their better-covered brethren.
With those key advantages in mind, we asked three contributors to come up with mid-cap stocks that looked like they could be worth buying right now. They determined that Olin (NYSE: OLN), Baozun (NASDAQ: BZUN), and SLM (NASDAQ: SLM) looked attractive enough to warrant consideration. Read on to find out why, and help inform your own decision on whether they're worth your money today.
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More bang for your buck
Rich Smith (Olin): I'll admit it: In the past, I've focused on owning Olin stock as a player in the firearms industry. And as the owner of Winchester ammunition, Olin is one of the biggest names in shooting sports -- but that's not the reason it's a top mid-cap stock to buy right now.
If you want to own Olin today, you want to own it for its booming chemicals businesses -- specifically, for its chlor alkali products and vinyls business, where sales are up 133% over the past three years, and for its epoxy unit, where sales are up 436.
Of the two units, chlor alkali is by far the more profitable, sporting 16% operating profit margins. (The rest of Olin earns less than 10%). And thanks largely to chlor alkali, Olin is currently earning nearly $350 million in net profits annually -- and generating positive free cash flow of $533 million.
At a market capitalization of only $3.4 billion, these numbers make Olin stock look kind of ridiculously cheap -- less than 10 times earnings and barely 6 times free cash flow. In truth, Olin stock isn't quite that cheap. Net debt of $3.4 billion raises the stock's enterprise value to twice its market cap. Still, with analysts forecasting 20% earnings growth rates, I don't think an enterprise value if 19.5 times earnings is necessarily too much to pay for Olin -- and 12.8 times FCF is certainly not too much.
With the shares selling for 29% cheaper today than what it cost a year ago, I think now's a fine time to own Olin stock.
A great play in China's online-retail market
Keith Noonan (Baozun): After big sell-offs hit the broader market at the end of 2018 and cut Baozun stock down to just $29 per share, the Chinese e-commerce services company's stock is up roughly 80% in 2019 so far. That might raise questions of whether its valuation has become unreasonably stretched, but I think investors still have the opportunity to see big returns from the stock at current prices.
For now, the company remains mostly focused on providing customizable online stores, marketing, order fulfillment, and other services to large Western brands looking to thrive in China's massive online retail market. However, it could open up its platform and services to domestic companies and tap another huge growth opportunity down the line. Even with the business facing some pressure from the ongoing trade disputes between the U.S. and China, and the latter country's economic slowdown, Baozun is delivering strong results. Sales climbed nearly 40% year over year last quarter, and adjusted net income jumped roughly 65% despite ramping up technology investment and marketing spending.
The company has a market capitalization of roughly $3.2 billion and trades at 37 times this year's expected earnings, so the valuation really doesn't look particularly stretched in light of the business' performance and huge runway for growth. Baozun stock has actually traded down 8% over the past year and is down 21% from the $67-per-share high it hit in 2018, and while the overall macroeconomic dynamics have become more complicated in the face of the trade disputes, the business' performance has been very encouraging.
Student loans are not subprime mortgages
Chuck Saletta (SLM): Student loans are making headlines these days, as people have begun questioning whether rising college costs make a degree still worth the effort and price tag. Add to that the fact that several politicians are practically declaring war on student loans, and it might seem crazy to consider an investment in student loan originator SLM.
That's especially true when you consider that the last financial crisis was caused by people taking out too much debt to buy assets -- in that case, houses -- that weren't ultimately worth the costs. Still, from an investor's perspective, there are substantial structural differences between the subprime loan crisis and the student loan crisis.
Most importantly, it's almost impossible to discharge student loans in bankruptcy. In fact, people's Social Security payments can even be garnished to pay back student loans in many cases, making them some of the toughest bills to get rid of by any means other than paying them off.
That's what makes SLM a mid-cap stock worth considering. Trading at less than 9 times trailing earnings, 7 times anticipated forward earnings, and around 1.5 times book value, SLM is being treated as though its business is poised for a terminal decline. That stands in stark contrast to the 15% annualized growth rate analysts are expecting the company to deliver over the next five years.
With the protections against default that student loans have, SLM doesn't look like it will be anywhere near as exposed as subprime lenders were, even if student loans spark the next crisis. That makes a catastrophic outcome for the company highly unlikely. As a result, its shares look priced for more pessimism than is likely to occur, making now a decent time to consider buying.
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Chuck Saletta has no position in any of the stocks mentioned. Keith Noonan owns shares of Baozun. Rich Smith owns shares of Baozun. The Motley Fool owns shares of and recommends Baozun. The Motley Fool has a disclosure policy.
