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Go Ahead! Be Boring: Buy 3 Mid-Caps

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I undertake a Zacks Chief Investment Officer (CIO) survey 4 times a year. The most recent survey I completed in late November.

Want one of the most interesting tidbits, with salient investor insight into 2020?

 

  • This CIO group thinks large-cap stocks (above $5B in market capitalization) likely add something between 0% and 5% to your returns
  • At the other end of the market cap spectrum, small-cap stocks (those below $1B in market cap) likely deliver 0% to 5% returns
  • However, CIOs collectively felt there is one niche to mine for outperforming 5% to 10% returns next year

This is a market blind spot: the market cap gap between the two -- the so-called mid-cap stocks. These are firms valued at between $1 and $5B in market capitalization.

In general, you know the quality tickers and company names of large-cap stocks. There is a comfort there. Small caps stock groups (like Computer Software) have sexier start-up names and new business concepts. So, there is always investor interest in looking into small caps. They are the Home Run stocks. Or the biggest blowups.

In between are these boring companies. Each firm’s activities are tied to stock tickers generally overlooked by the crowd. But they can be very profitable.

In the Zacks Industry Ranks in December 2019, I found one classic example. It is the Miscellaneous Consumer Services industry. I counted 9 companies in it.

Earnings estimates here are on a tear. This overlooked stock niche has a Zacks Industry Rank of #19 out of 253 (Top 10%). Over the last 8 weeks of time, this ranking has never been lower than #49 (Top 20%).

Yes. Miscellaneous Consumer Services is a convoluted title. Yes. The group is NOT populated with sexy tickers. Yes. The business models are a grab bag of sensible but boring activities.

However, investors can make excellent money on these types of stocks next year, according to both CIOs and our Zacks Rank system. I will just leave it at that.

The top three names—

(1) Cimpress N.V. (CMPR - Free Report) ): This 1st pick is a $3.3B market cap stock with a $118 dollar price tag.

It is a Zacks #2 Rank (BUY). There is a Zacks Value score of C and a Zacks Growth score of A and a Zacks Momentum score of A.

Cimpress N.V. is an online supplier of high-quality graphic design services and customized printed products to small businesses and consumers.

Its product offerings include business cards, brochures and websites to invitations, thank you notes, calendars, address labels, note pads and signage, among others.

With the use of proprietary web-based design software and advanced computer integrated printing facilities, the company has a competitive advantage over traditional graphic design and printing methods.

It has production facilities in the United States, Austria, China, Brazil, Australia, Canada, India, France, Japan, Italy, the U.K., Ireland, Mexico and the Netherlands.

Cimpress was originally known as Vistaprint N.V. In second-quarter fiscal 2015 (ended December 2015), Vistaprint changed its corporate name to Cimpress N.V. and ticker symbol to CMPR.

The change in the corporate name was a conscious effort to distinguish the corporate entity and its technology and operational mass customization platform with the growing portfolio of customer-centric brands like Vistaprint, Drukwerkdeal, Albelli and Pixartprinting.

(2) H&R Block (HRB - Free Report) ): This 2nd pick has a market cap of $4.6B and a share price of $23.

It is a Zacks #1 Rank (STRONG BUY) stock. The Zacks Value score is A (with a forward P/E of 9.6) and a Zacks Growth score of D, and a Zacks Momentum score of A.

H&R Block Inc. is a leading provider of tax preparation services. The company provides assisted income tax return preparation, do-it-yourself (DIY) tax solutions and other products and services associated with income tax return preparation in the United States, Canada and Australia.

Assisted income tax return preparation services are provided through a system of retail offices operated directly by the company or by franchisees. DIY tax services include preparation of federal and state income tax returns, advice and tax-related news, access to tax tips, use of calculators for tax planning, and error checking and electronic filing.

The company develops and markets DIY income tax preparation software online, and through third-party retail stores and direct mail. The company offers return preparation solutions through mobile applications as well.

Additional offerings from the company include Refund Transfers, H&R Block Emerald Advance lines of credit, Peace of Mind Extended Service Plan, Tax Identity Shield, H&R Block Emerald Prepaid MasterCard, and refund advance loans; POM, an Instant Cash Back refund option; and H&R Block Pay with Refund option.

H&R Block was organized as a corporation in 1955 under the laws of the State of Missouri and is headquartered in Kansas City, MO. The company has around 11,600 company-owned and franchise offices worldwide.

As most of the clients file their tax returns from January through April of each year, most of H&R Block’s revenues from income tax return preparation and related services and products are received during this period. As a result, the Tax Services segment generally operates at a loss through the first nine months of a fiscal year.

(3) SP Plus (SP - Free Report) ): This 3rd and final pick has a market cap of $1.1B with a share price of $44.

It is a Zacks #1 Rank (STRONG BUY) stock. The Zacks Value score is B (with a forward P/E of 15.7) and a Zacks Growth score of A, and a Zacks Momentum score of D.

SP Plus provides professional parking, ground transportation, facility maintenance, security and event logistics services to property owners and managers in all markets of the real estate industry.

The company also provides a range of ancillary services, such as airport shuttle operations, taxi and livery dispatch services and municipal meter revenue collection and enforcement services. Its clients include owners of office building complexes, shopping centers, sports complexes, hotels, hospitals and various airports.

SP Plus, formerly known as Standard Parking Corporation, is based in United States.

Like I said, the three business models are NOT exciting. They make business cards, do income tax prep, and offer you a parking slot in a downtown garage.

Yet mid cap stocks may well be the top niche to make returns next year. 

If you think boring is boring, look at a Domino’s Pizza share price chart and get over it.

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SP Plus Corporation (SP) - free report >>

H&R Block, Inc. (HRB) - free report >>

Cimpress N.V (CMPR) - free report >>