Through nearly seven months of 2010 the S&P 500 Index, composed of mainly large-cap stocks, is sitting where it started the year. During the same time frame the S&P Mid-Cap 400 Index has been able to gain 7% as investors move back into the growth areas of the market and concentrate on stock picking.
As an avid fan of picking individual stocks I decided to analyze the stocks that make up the S&P 400 Index and have come up with my five favorite mid-cap stock ideas.
IN PICTURES: How To Make Your First $1 Million
Healthcare
ResMed (NYSE:RMD) is a medical equipment company that focuses on sleeping ailments and other respiratory disorders. The most recent earnings report in late April showed a 25% boost in net income and 22% increase in revenue, both coming in better than analyst expectations. Earnings are expected to nearly double from 2008 through 2011 to $2.82 per share. According to First Call Estimates the number could close in on $5 by 2014. RMD is a true growth story as the stock is up 24% in 2010 and is not far from its all-time high set in April 2010.
IDEXX Laboratories (Nasdaq:IDXX) is a diagnostics company that makes products used in the veterinary, food and water safety sectors, such as diagnostic tests to check the safety of water sources. Last week the company reported second-quarter results of 6% revenue growth and an 11% net income increase. Guidance was in line with expectations, but revenue could come in below original expectations due to a rising U.S. dollar. The stock is down 13% from its April high and is finding support in the high-$50s, making the stock an attractive niche play once again.
Measuring Up
Mettler-Toledo International (NYSE:MTD) is one of the world's largest manufacturers of weighting instruments used in labs and the food industry. The company is also a world leader in metal detection devices. Similar to the first two stocks, MTD hit an all-time high in late April and has since pulled back. During the second quarter, MTD reported net income that rose by 32% as revenue increased by 16%. The stock is currently trading with a forward P/E ratio of 16.7, making it a value play in a niche sector in which it is the major player.
Wooden Nickels
Investing in timber land and lumber may not sound very interesting, but Potlatch (NYSE:PCH) spices it up with a 5.8% dividend yield. The real estate investment trust (REIT) owns timber land in several U.S. states and harvests its land for the timber used in various industries. The forward P/E ratio is 22.5 and not the most attractive valuation. However, there is another reason PCH is one of my favorite mid-cap stocks: inflation. During inflationary times, timber and landowners tend to outperform their peers. There is also an argument to be made that the supply of timber is decreasing, causing a possible supply crunch.
ADTRAN (Nasdaq:ADTN) is benefiting from the broadband build-out going on in the U.S. as it sells its more than 1,700 network access products and systems that enable data and voice to wireless and wire line carriers. The most recent earnings report saw sales increase by 24% to a new record as net income surged by 47%. The company's forward P/E is 18.4 - very attractive for a high-growth technology company - which is why the stock recently hit a four-year high. This is a buy on weakness situation.
The Forgotten
Oftentimes the mid-cap stocks are overlooked as investors either focus on the large-cap, familiar names or the small-cap stocks that could be the next big winners. When it comes to mid-cap stocks, you can find undiscovered stories that are just hitting their stride and finding their sweet spot as investments. (Learn more in Market Capitalization Defined.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
