Mid-cap stocks often strike the right balance between having proven business models and market opportunities that can support $100 billion corporations. However, they face intense competition from scaled industry giants and can be disrupted by new innovative players vying for a slice of the pie.
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 avoid and some other investments you should consider instead.
Amkor (AMKR)
Market Cap: $12.35 billion
Operating through a largely Asian facility footprint, Amkor Technologies (NASDAQ: AMKR) provides outsourced packaging and testing for semiconductors.
Why Are We Cautious About AMKR?
- High input costs result in an inferior gross margin of 14.4% that must be offset through higher volumes
- Performance over the past five years shows its incremental sales were less profitable, as its 1.5% annual earnings per share growth trailed its revenue gains
- Lacking free cash flow margin got worse over the last five years as its investment needs accelerated
Amkor’s stock price of $50.10 implies a valuation ratio of 29.3x forward P/E. Read our free research report to see why you should think twice about including AMKR in your portfolio.
Waters Corporation (WAT)
Market Cap: $29.66 billion
Founded in 1958 and pioneering innovations in laboratory analysis for over six decades, Waters (NYSE: WAT) develops and manufactures analytical instruments, software, and consumables for liquid chromatography, mass spectrometry, and thermal analysis used in scientific research and quality testing.
Why Are We Hesitant About WAT?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Expenses have increased as a percentage of revenue over the last two years as its adjusted operating margin fell by 13.7 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
Waters Corporation is trading at $302.34 per share, or 21.2x forward P/E. Check out our free in-depth research report to learn more about why WAT doesn’t pass our bar.
Citizens Financial Group (CFG)
Market Cap: $25.25 billion
Tracing its roots back to 1828 as a community-focused institution, Citizens Financial Group (NYSE: CFG) is a regional bank that provides retail and commercial banking services to individuals, small businesses, and large corporations across 14 states.
Why Is CFG Risky?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Net interest income trends were unexciting over the last five years as its 5% annual growth was below the typical banking firm
- Flat earnings per share over the last two years underperformed the sector average
At $58.91 per share, Citizens Financial Group trades at 1x forward P/B. If you’re considering CFG for your portfolio, see our FREE research report to learn more.
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