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Buy 5 Mid-Cap Winners of an Extremely Capricious 2022

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Severe volatility in U.S. stock markets from the beginning of this year has shown no sign of abatement. U.S. stocks have corrected significantly so far in 2022 after a fabulous rally in the last two pandemic-ridden years.

The complete devastation of the global supply-chain system, mounting inflation and a higher interest rate regime, together with tighter monetary control, have significantly dented investors’ confidence in risky assets like equities. The two month-long summer rally has evaporated as inflation stayed at a 40-year high.

Market participants remain uncertain about the Fed’s rate hike in the September FOMC and its future course of policy prescriptions that may lead to a recession in the U.S. economy.

Despite these negatives, it should be prudent to invest in mid-cap stocks with a favorable Zacks Rank that have popped year to date and more upside left. Here are five such stocks — Unum Group (UNM - Free Report) , Murphy USA Inc. (MUSA - Free Report) , NOV Inc. (NOV - Free Report) , H&R Block Inc. (HRB - Free Report) and Shell Midstream Partners L.P. .

Why 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 of enhancing their profitability, productivity and market share. These may also become large caps in due course of time.

If the economic recovery slows down due to any unforeseen internal or external disturbance, 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.

A Few Positives

Several retail technology and transportation giants have already warned that a higher interest rate regime is taking a toll on their profits and the economy may enter into a recession in the near future. Last week, the World Bank also said that tighter monetary control by major central banks will push the global economy into a recession in 2023.

As a result, major central banks, especially the Fed, may not take further aggressive stances like hiking the benchmark intertest rate by 1% in the September FOMC. Inflation data for the last reported three months have shown that it has declined albeit at a slow pace. Moreover, a negative outlook given by several large corporates can also be interpreted that the Fed’s hawkish therapy is yielding results.

Out Top Picks

We have narrowed our search to five mid-cap (market capital > $1 billion < $10 billion) stocks that have solid upside left for the rest of 2022. These stocks have seen strong earnings estimate revisions in the last 60 days and appreciated year to date.  Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (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 year to date.

Zacks Investment Research
Image Source: Zacks Investment Research

Unum Group’s conservative pricing and reservation practices have contributed to overall profitability. The sustained increase in premiums is being fueled by high persistency levels in core business lines and strong sales volume along with solid expansions.

The continued rollout of dental products and geographic expansion have been paying off for UNM as its acquired dental insurance businesses are growing in the United States and the U.K. UNM has consistently enhanced shareholders’ value. Unum Group expects 2022 premiums to grow about 2%. Adjusted operating EPS is expected to grow 15-20%.

Zacks rank #1 Unum Group has an expected earnings growth rate of 40.5% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1.3% over the last 7 days. The stock price of UNM has jumped 62.9% year to date.

Murphy USA is engaged in the marketing of retail motor fuel products and convenience merchandise. It operates retail stores under the Murphy USA and Murphy Express brand names. MUSA’s stations are located near Walmart supercenters. This enables the company to attract significantly more transactions than its peers.

Murphy USA's access to pipelines and product distribution terminals is another key competitive advantage, helping to keep costs down in the fiercely competitive retail space. Discount pricing and last year’s QuickChek acquisition are the other positives for MUSA, while a new $1 billion share buyback authorization underscores its sound financial position.

Zacks Rank #1 Murphy USA has an expected earnings growth rate of 61.5% for the current year. The Zacks Consensus Estimate for current-year earnings improved 5.6% over the last 7 days. The stock price of MUSA has climbed 39% year to date.

NOV is one of the world's biggest manufacturers of drilling equipment. In particular, NOV is well positioned to supply rigs capable of tackling the immense challenges of drilling in deepwater.

NOV remains optimistic about the market’s improving outlook and the emerging multi-year commodity price upcycle. Its large base of rigs globally offers a steady recurring revenue stream. Ample cash, the availability of $2 billion under its revolving credit facility and an attractive debt maturity profile are the other positives.

Zacks Rank #1 NOV has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 66.7% over the last 60 days. The stock price of NOV has advanced 26.4% year to date.

H&R Block is well poised to gain from its five-year strategy known as Block Horizons. HRB is expected to deliver sustainable revenues, operating profit growth and healthy returns on investments, while maintaining a strong balance sheet and liquidity position in the foreseeable future.

The main drivers of H&R Block’s performance post- pandemic will be the digital enablement of business, client addition and retention in both Assisted and DIY, greater usage of AI, along with machine learning for product improvement and expansion in small businesses.

Zacks Rank #2 H&R Block has an expected earnings growth rate of 7.7% for the current fiscal year (ending June 2023). The Zacks Consensus Estimate for the current fiscal year has improved 0.5% over the last 30 days. The stock price of HRB has soared 90.7% year to date.

Shell Midstream is engaged in owning, operating, developing and acquiring pipelines and other midstream assets. SHLX’s assets consist of interests in entities that own crude oil and refined products pipelines serving as key infrastructure to transport growing onshore and offshore crude oil production to the Gulf Coast refining markets and deliver refined products from those markets to major demand centers.

Shell Midstream has an expected earnings growth rate of 11% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1.3% over the last 60 days. The stock price of SHLX has surged 37.4% year to date.


In-Depth Zacks Research for the Tickers Above


One ticker, your choice, absolutely free ($25 value):


NOV Inc. (NOV) - free report >>

Unum Group (UNM) - free report >>

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

Murphy USA Inc. (MUSA) - free report >>

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