Many investors pay attention to mid-cap stocks because they have established business models and expansive market opportunities. However, their paths to becoming $100 billion corporations are ripe with competition, ranging from giants with vast resources to agile upstarts eager to disrupt the status quo.
These dynamics can rattle even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three mid-cap stocks to swipe left on and some alternatives you should look into instead.
Skyworks Solutions (SWKS)
Market Cap: $11.72 billion
Result of a merger of Alpha Industries and the wireless communications division of Conexant, Skyworks Solutions (NASDAQ: SWKS) is a designer and manufacturer of chips used in smartphones, autos, and industrial applications to amplify, filter, and process wireless signals.
Why Do We Think SWKS Will Underperform?
- Annual sales declines of 10.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 21.5 percentage points
Skyworks Solutions is trading at $79.10 per share, or 19.9x forward P/E. Read our free research report to see why you should think twice about including SWKS in your portfolio.
Toll Brothers (TOL)
Market Cap: $13.46 billion
Started by two brothers who started by building and selling just one home in Pennsylvania, today Toll Brothers (NYSE: TOL) is a luxury homebuilder across the United States.
Why Are We Hesitant About TOL?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 6.3% declines over the past two years
- Earnings per share have contracted by 1.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Free cash flow margin shrank by 6.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $140 per share, Toll Brothers trades at 10x forward P/E. Dive into our free research report to see why there are better opportunities than TOL.
Labcorp (LH)
Market Cap: $23.04 billion
With over 600 million tests performed annually and involvement in 90% of FDA-approved drugs in 2023, Labcorp (NYSE: LH) provides laboratory testing services and drug development solutions to doctors, hospitals, pharmaceutical companies, and patients worldwide.
Why Does LH Worry Us?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 14.3 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
Labcorp’s stock price of $277.27 implies a valuation ratio of 16.5x forward P/E. To fully understand why you should be careful with LH, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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