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.
This is precisely where StockStory comes in - we do the heavy lifting to identify companies with solid fundamentals so you can invest with confidence. That said, here are three mid-cap stocks to avoid and some other investments you should consider instead.
WESCO (WCC)
Market Cap: $17.74 billion
Based in Pittsburgh, WESCO (NYSE: WCC) provides electrical, industrial, and communications products and augments them with services such as supply chain management.
Why Are We Hesitant About WCC?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Gross margin of 21.4% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Poor free cash flow margin of 1.5% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
WESCO is trading at $367.48 per share, or 22.1x forward P/E. Check out our free in-depth research report to learn more about why WCC doesn’t pass our bar.
Huntington Ingalls (HII)
Market Cap: $12.64 billion
Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE: HII) develops marine vessels and their mission systems and maintenance services.
Why Are We Out on HII?
- The company has faced growth challenges as its 5.3% annual revenue increases over the last two years fell short of other industrials companies
- Estimated sales growth of 2.4% for the next 12 months implies demand will slow from its two-year trend
- Earnings per share have contracted by 1.5% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
Huntington Ingalls’s stock price of $321.50 implies a valuation ratio of 17.6x forward P/E. Read our free research report to see why you should think twice about including HII in your portfolio.
Trimble (TRMB)
Market Cap: $12.8 billion
Playing a role in the construction of the Paris Grand, Trimble (NASDAQ: TRMB) offers geospatial devices and technology to the agriculture, construction, transportation, and logistics industries.
Why Is TRMB Not Exciting?
- Annual sales declines of 2% for the past two years show its products and services struggled to connect with the market during this cycle
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging
At $55.50 per share, Trimble trades at 15x forward P/E. To fully understand why you should be careful with TRMB, check out our full research report (it’s free).
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