Mid-cap stocks are a relatively small group compared to large or small cap. And there’s a very good reason for this. For the most part, small-cap stocks display strong growth characteristics, but of course this comes at high risk. The small business owner doesn’t have the resources to get through economically challenging times or deal with stiff competition. Nor is he able to generate efficiencies from scale. His success depends primarily on the product and the relationships he is able to develop.

So there’s a huge incentive to keep investing in the business until some sort of scale is achieved. There are as many small businesses as there are entrepreneurs. And these days, with relatively easy VC money, the small-cap segment is growing strongly.

On the other hand, once a company grows into a large-cap stock, it generally has steady cash flows from a proven business model. This is a low-risk situation. However, the size normally leads to slower growth (we aren’t talking big tech here). This could be fine for more mature investors who don’t have that many working years left. Or it could be a good balancing act for a portfolio weighted toward high-risk high-growth names.

Briefly between these two stages, a company passes through the mid-cap stage when you’re generating relatively strong growth at relatively lower risk. So with mid-caps, you have the best of both worlds.

Second, if you’ve been trading for a while, you would have already discovered that its generally the large-caps, or really hot stocks that have a lot of analyst coverage. And often slipping through the cracks are the mid-caps, which while being good investments, don’t receive the deserved attention. Which means that there’s a good chance they haven’t been bid up. So there’s a better chance of finding value in the mid-cap category.

Third, the Fed has turned hawkish of late (the Labor Department's CPI climbed by 6.8% in November, the fastest increase rate since June 1982), which means tapering, and therefore, imminent pressure on stocks as more money moves to higher-yielding bonds.

So growth stocks that have been bid up too much, or stocks that are more risky depending on their specific circumstances, could see some pressure over the next year. While the right growth stocks are not to be shied away from, it’s important to load up on a bit of value as well. And the mid-cap segment may be just the place to find it.

Fourth, labor shortage has affected different companies in different ways. But the JOLTS report for October indicates that mid-sized companies may be better off-

Job openings are up across the board, but quitting has increased in small establishments with 1-9 employees and large establishments with 5,000 or more employees. Layoffs and discharging have also increased in these large establishments.

On the other hand, in middle-level establishments with 1,000 to 4,999 employees, job openings may have increased but hiring has decreased. So these establishments are likely at a more optimum level of employment.  

This is further confirmed by BLS wage data. And so, we see a significant increase in total wages in 2020, as employment reflected higher-paying jobs, because many of the lower-paying services type of jobs making up a smaller part of the total. With this segment returning in 2021, we see a decline in wage rates this year.

So it’s the small establishments that are doing most of the hiring now while the large ones are still reducing workers to get to an optimum level. At the middle is where you see the best-balanced players.

Given the above factors, here are a few stocks that you may want to consider-

Asbury Automotive Group (ABG Quick QuoteABG - Free Report)

Asbury Automotive is one of the largest automotive retailers offering new and used vehicle sales and related financing and insurance, vehicle maintenance and repair services, replacement parts and service contracts through their owned and franchised stores.

Zacks #1 (Strong Buy) ranked Asbury has a Value Score A and belongs to the Automotive - Retail and Whole Sales industry (top 9% of Zacks-classified industries).

Asbury’s revenue is expected to grow 12.0% in 2022 when its earnings are expected to grow 13.2%. Its 2022 estimates have been moving up consistently in the last 90 days. They are up $2.70 (10.3%) in the last 30 days.

Asbury shares are undervalued. They currently trade at 5.96X F2 earnings, 0.42X sales and its PEG ratio is 0.36.

Kohl's (KSS Quick QuoteKSS - Free Report)

Kohl’s Corp. is a U.S. based department store chain offering moderately-priced apparel, footwear and accessories for men, women and children; as well as beauty and home articles. As of Oct, Kohl’s had more than 1,100 stores across 49 states. It also sells through its ecommerce site and the Kohl’s app.

In the year ending Jan 2023, Kohl’s is expected to grow revenue and earnings by 2.2% and -5.6%, respectively. The analyst estimate for the year is expected to grow 88 cents (14.6%).

Kohl’s shares carry a Zacks Rank #1. They have a Value Score of A and belong to the Retail - Regional Department Stores industry top 2%).

However, they remain cheap at a valuation of 7.50X earnings, 0.38X sales and a 0.89 PEG.

The Chemours Company (CC Quick QuoteCC - Free Report)

The Chemours Company is a leading provider of performance chemicals that are key ingredients in end-products and processes including plastics and coatings, refrigeration and air conditioning, mining and general industrial manufacturing and electronics.

Chemours, with its Zacks #1 rank and Value Score of A belongs to the Chemical – Diversified industry (top 35%).

Chemours is currently expected to grow its revenue by 6.4% and earnings by 8.2% in 2022. Estimates for the year are up 42 cents (10.6%) in the last 60 days.

Chemours shares look pretty attractive right now, trading at 7.43X 2022 earnings, 0.88X sales and its PEG is 0.23.

Berry Global Group (BERY Quick QuoteBERY - Free Report)

Berry Global manufactures and distributes nonwoven specialty materials, engineered materials and consumer packaging products for personal care, healthcare, beverage and food markets in South America, North America, Asia and Europe.

#2 (Buy) ranked Berry Global has a Value Score of A and belongs to the Zacks-classified Containers - Paper and Packaging industry (top 42%).

In the year ending Sep 2022, Berry Global is expected to grow its revenue and earnings by a respective 4.4% and 2.6%. The following year, revenue and earnings will grow 0.7% and 6.3%, respectively. The Zacks Consensus Estimate for the two years are up $1.12 (17.8%) and $1.02 (14.9%).

The shares are trading cheaply at 9.15X earnings, 0.70X sales and its PEG ratio is 0.97.

Arrow Electronics (ARW Quick QuoteARW - Free Report)

Arrow Electronics is one of the world’s largest distributors of electronic components and enterprise computing products. Arrow provides one of the broadest product ranges in the space, as well as a wide range of value-added services.

Arrow has a Zacks Rank #2 and Value Score A. It is part of the Zacks-classified Electronics - Parts Distribution industry (top 9%).

Arrow’s 2022 revenue and earnings are currently expected to grow 1.5% and 6.5%, respectively. Earnings estimates for the year are up $1.29 (9.0%).

Arrow shares trade at 8.14X earnings, 0.26X sales and its PEG ratio is 0.32. So they are worth considering.

3-Month Price Performance

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