Investors across the world are rattled by an impending recession owing to lingering trade conflict between the United States and China. Although the U.S. economy is still expanding albeit at a slow pace, the economies of Eurozone and China are struggling. Moreover, governments and central banks of several emerging market economies have undertaken a series of fiscal and monetary measures in order to boost their sagging economic conditions.
At this juncture, investment in mid-cap stocks with a favorable Zacks Rank is likely to be a good diversification strategy for near to long-term gains. Meanwhile, mid-cap stocks have rallied so far in 2019. The S&P 400 Mid-cap Index (SP400) has surged 17.3% year to date. Tepid Global Economic Data On Sep 23, IHS Markit reported that the manufacturing PMI of Germany, the largest economy of the Eurozone, fell to a reading of 44.1 in September, reflecting its lowest level since late 2009. Importantly, any reading below 50 indicates contraction in manufacturing activities. Moreover, the composite PMI of Germany (including both manufacturing and services sectors) contracted to 49.1 in September, the lowest level in nearly seven years. For Eurozone as a whole, manufacturing PMI contracted to 45.6 in September from 47 in August. Services PMI was 52 compared with 53.5 in the previous month. The composite PMI however declined to six-year low of 50.4 from 51.9 in August. In the second quarter of 2019, China’s economic growth fell to the lowest level in 27 years. China’s imports have fallen in six out of the first seven months this year, indicating its sluggish economic growth. China’s manufacturing PMI for August came in at below 50, reflecting contraction in Chinese manufacturing. On Sep 23, Christine Lagarde, the president designated of the European Central Bank largely blamed the prolonging trade war between the two largest trading nations of the world as the primary reason for global economic downturn. Germany’s economy mainly depends on its exports, which were dampened significantly due to global downturn. Moreover, geopolitical issues like Brexit and Italy’s political turmoil also dented business confidence. The ECB is maintaining a negative interest rate policy for a long time. At present, more than $17 trillion of assets are under negative treasury yield globally compared with just $8 trillion at the end of 2018, marking investors’ fears of an impending recession. Interim Trade Deal Yet to Mature On Sep 12, President Donald Trump told reporters that he is not averse to an interim trade deal with China. However, his preference is a full agreement resulting in a complete trade deal with the Asian economic powerhouse. On Sep 19, Michael Pillsbury, a key White House adviser said the U.S. government is set to increase tariff pressure on China if a trade deal is not agreed upon soon as Washington has so far imposed only “low level tariffs” on China. On Sep 20 Chinese officials cut short their visit to the U.S. agricultural firms. On Sep 23, U.S. Treasury Secretary Steven Mnuchin said that he and U.S. Trade Representative Robert Lighthizer would meet with Chinese vice premier Liu He for trade talks in the second week of October, which was earlier scheduled in the first week. Why Mid-Cap Stocks? Investment in mid-cap stocks is often recognized as a good portfolio diversification strategy. These stocks combine attractive attributes of both small and large-cap stocks. If the trade deal breaks down, mid-cap stocks will not be as susceptible to losses as their large-cap counterparts owing to less international exposure. However, if the Wall Street bull run continues owing to an interim trade deal, Fed’s rate cut or strong economic data, these stocks will gain higher than small caps due to established management teams, a broad distribution network, brand recognition and ready access to capital markets. 5 Mid-Cap Stocks Moving Higher We have been able to narrow down our search to five mid-cap stocks, which have skyrocketed in the last three months and still hold potential. All five stocks currently sport a Zacks Rank #1 (Strong Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here The chart below shows price performance of our five picks in the past three months. RH RH is a luxury brand in the home furnishings marketplace, offering product assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, as well as baby and child products. The stock has jumped 51.8% in the past three months. The company has expected earnings growth of 26.2% for the current year. The Zacks Consensus Estimate for the current year has improved 20.7% over the last 60 days. PennyMac Financial Services Inc. PFSI provides financial services primarily in the United States. It conducts its business in three segments: Loan Production, Loan Servicing and Investment Management. The stock has jumped 41.8% in the past three months. The company has expected earnings growth of 41.3% for the current year. The Zacks Consensus Estimate for the current year has improved 25.8% over the last 60 days. Medpace Holdings Inc. MEDP is a clinical contract research organization that provides scientifically-driven outsourced clinical development services to the biotechnology, pharmaceutical and medical device industries worldwide. It offers a suite of services, supporting the clinical development process from phase I to phase IV in a range of therapeutic areas. The stock has climbed 36.7% in the past three months. The company has expected earnings growth of 12.4% for the current year. The Zacks Consensus Estimate for the current year has improved 9.8% over the last 60 days. Mercury Systems Inc. ( MRCY Quick Quote MRCY - Free Report) provides sensor and safety critical mission processing subsystems for various critical aerospace, commercial aviation, defense, and intelligence programs in the United States, Europe and the Asia Pacific. The stock has soared 25.3% in the past three months. The company has expected earnings growth of 11.4% for the current year. The Zacks Consensus Estimate for the current year has improved 6.8% over the last 60 days. Lithia Motors Inc. LAD is one of largest automotive retailers featuring most domestic and import franchises serving urban and rural populations throughout the Western and Midwest United States. It operates through three segments: Domestic, Import and Luxury. The stock has surged 12.2% in the past three months. The company has expected earnings growth of 12.8% for the current year. The Zacks Consensus Estimate for the current year has improved 1.5% over the last 60 days. Today's Best Stocks from Zacks Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%. This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year. See their latest picks free >>