The free fall of U.S. stock markets since the beginning of this year has been showing no sign of abatement. Barring a short rally in the second half of March, the bearish trend continues. After a ruthless April, the meltdown intensified in May.
Despite the current uncertainties regarding the stock market’s movement, several mid-cap (market capital > $1 billion < $10 billion) stocks have surged in the past month. Investment in such stocks with a favorable Zacks Rank and strong potential for the rest of 2022 should be fruitful going forward. Five of them are —
Penske Automotive Group Inc. ( PAG Quick Quote PAG - Free Report) , Griffon Corp. ( GFF Quick Quote GFF - Free Report) , Louisiana-Pacific Corp. ( LPX Quick Quote LPX - Free Report) , The Chemours Co. ( CC Quick Quote CC - Free Report) and Avnet Inc. ( AVT Quick Quote AVT - Free Report) . Wall Street Mayhem Continues
Skyrocketing inflation, complete destruction of the global supply-chain system and geopolitical conflicts have raised serious doubts about global economic growth. In the United States, a large section of economists and financial experts apprehend a recession either in 2022 or next year.
U.S. inflation is currently at a 40-year high and the Fed is gradually shifting from an ultra-dovish to an ultra-hawkish policy regime. The central bank terminated the $120 billion per month quantitative easing program in March, and raised the benchmark lending rate by 25 basis points the same month and by 50 basis points in May.
It also gave a clear signal that two more rate hikes of 50 basis points are coming in June and July, and that the systematic shrinking of the $9 trillion balance sheet would begin on Jun 1. On May 9, the yield on the benchmark U.S. 10-Year Treasury Note climbed to 3.17%, its highest in more than three years. Market’s fear gauge — the CBOE VIX — is currently at 32.56, well above its historical average of 20.
Importance of Mid-Cap Stocks
Investment in mid-cap stocks is often recognized as a good portfolio diversification strategy. These stocks combine the attractive attributes of both small and large-cap stocks. Top-ranked mid-cap stocks have a high potential to enhance their profitability, productivity and market share and may become large caps in the due course of time.
If the economic recovery slows down due to any unforeseen internal or external disturbances, mid-cap stocks will be less susceptible to losses than their large-cap counterparts owing to less international exposure.
On the other hand, if the crisis doesn’t worsen , these stocks will gain more than small caps due to established management teams, a broad distribution network, brand recognition and ready access to the capital markets.
Our Top Picks
We have narrowed our search to five mid-cap stocks that have popped double-digit in the past month, with more upside left in the rest of 2022. These companies are regular dividend payers, which will act as an income stream during a market downturn.
Moreover, these companies have seen positive earnings estimate revisions in the last 30 days, indicating that the market is expecting them to do solid business in the near future. Each of our picks carries a Zacks Rank #1 (Strong Buy). You can see
. the complete list of today’s Zacks #1 Rank stocks here
The chart below shows the price performance of our five picks in the past month.
Image Source: Zacks Investment Research Griffon is a diversified management and holding company conducting business through wholly-owned subsidiaries. GFF oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures.
Griffon provides consumer and professional, and home and building products in the United States, Europe, Canada, Australia, and internationally. GFF offers direction and assistance to its subsidiaries in connection with acquisition and growth opportunities and in connection with divestitures.
Griffon has an expected earnings growth rate of 68.8% for the current year (ending September 2022). The Zacks Consensus Estimate for current-year earnings has improved 40% over the last 30 days. The stock price has jumped 24.3% in the past month. GFF has a current dividend yield of 1.53%.
Avnet is one of the world’s largest distributors of electronic components and computer products. AVT’s customer base includes original equipment manufacturers, electronic manufacturing services providers, original design manufacturers, and value-added resellers.
Avnet maintains an extensive inventory, including electronic products from more than 300 component and system manufacturers, which it distributes to customers worldwide. AVT operates through two segments, Electronic Components and Farnell.
Avnet has an expected earnings growth rate of more than 100% for the current year (ending June 2022). The Zacks Consensus Estimate for current-year earnings has improved 20.5% over the last 30 days. The stock price has climbed 22.3% in the past month. AVT has a current dividend yield of 2.22%.
The Chemours should gain from the strong adoption of the Opteon platform and its cost-management actions. CC is seeing higher demand for Opteon in mobile and stationery applications and is taking actions to drive adoption. The ramp-up of the Corpus Christi facility will allow the company to meet future demand.
The Chemours is also taking actions to reduce costs. CC’s productivity and operational improvement actions across its businesses are also expected to support its margins. The Chemours remains focused on boosting its cash flows and returning value to shareholders through dividend and share repurchases.
The Chemours has an expected earnings growth rate of 30.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.2% over the last 7 days. The stock price has surged 14.9% in the past month. CC has a current dividend yield of 2.57%.
Penske Automotive is riding high on strategic acquisitions. PAG has become the largest dealership group for Freightliner in North America with Warner Truck Centers buyout. The buyouts of Kansas City Freightliner, McCoy and Team Trucks Centers are boosting Penske Automotive’s top line.
Over the last 12 months, PAG has completed acquisitions or opened new dealerships that would add $1.9 billion in annualized revenues. Penske Transportation Solutions joint venture and the acquisition of Black Horse Carriers are also driving sales. The expansion of digital capabilities, balance sheet strength and investor-friendly moves are its other positives.
Penske Automotive has an expected earnings growth rate of 3.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.8% over the last 30 days. The stock price has appreciated 12.5% in the past month. PAG has a current dividend yield of 1.72%.
Louisiana-Pacific is benefitting from solid housing and repair/remodel activity, strategic business transformation, effective cash management and inorganic moves. Although LPX has been grappling with raw materials and freight inflation, higher demand for specialty products and focus on accelerating strategic transformation should drive growth.
Louisiana-Pacific’s consistent focus on improving business by growing the Siding unit and simultaneously reducing cost bodes well. LPX plans to invest more than $400 million in capital projects in 2022 and grow its capacity to produce SmartSide, ExpertFinish, and value-added Structural Solutions products.
Louisiana-Pacific has an expected earnings growth rate of 6.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 14.2% over the last 7 days. The stock price has advanced 11.2% in the past month. LPX has a current dividend yield of 1.19%.