3 Mid-Caps Poised to Finish the Year Strong
With the S&P 400 mid-cap index up 16.7% so far this year, many companies have had strong first halves. Others have underperformed but have the catalys...
The U.S. mid-cap space is a great place to find companies that are benefitting from the economic recovery.
Unlike their large-cap counterparts, mid-caps tend to be less mature and therefore have longer growth runways. And whereas small caps typically carry high levels of risk, mid-caps tend to be less volatile. Thus, many investors find mid-caps to be attractive investment vehicles because they are in established markets, have good upside, and moderate risk profiles.
With the S&P 400 mid-cap index up 16.7% so far this year, many companies have had strong first halves. Others have underperformed but have the catalysts in place to finish the year strong—and make mid-year mid-cap investors happy.
Does the Market Misunderstand International Game Technology?
International Game Technology (NYSE: IGT) is up 12% for the year, but due to a slide, the last couple of months lags its mid-cap peers. The electronic gaming equipment maker had a much better first half compared to the first half of 2020 when the tourism and casino industries grinded to a halt. Earnings per share (EPS) were $0.86 for the first two quarters combined; a year ago IGT recorded a $0.51 per share loss for the same period.
Next quarter’s EPS are expected to be $0.19 followed by an acceleration to $0.24 in the fourth quarter. Although in lesser magnitude to the first half comps, this would mark another impressive turnaround from the second half of 2020 when IGT earned a mere $0.02 per share.
On the surface, IGT should continue to benefit from higher demand from gaming customers as casinos and hotels reopen worldwide. Over the last 12 months, the stock has largely traded in line with pandemic-related developments and the broader reopening trade, but perhaps it shouldn’t.
That’s because Global Lottery revenue currently accounts for more than 70% of the business. And since this is recurring revenue that is less exposed to reopening conditions, the market may be undervaluing the strength of this segment. It serves as a more stable source of growth that has kept the business going while the Global Gaming segment comes back online.
Does NiSource Stock Offer Good Value?
Utility stock NiSource (NYSE: NI) had a great run from March to mid-April but has flatlined since. It appears to be forming the base for the next leg up. After hovering around its moving average (MA) line for weeks, the relative strength indicator (RSI) has finally peeked above the MA, a bullish near-term chart development.
The fundamentals also look good for the rate-regulated gas & electric company. It has a growing customer base of more than 4 million across seven states. NiSource’s recent investments in power generation and infrastructure are expected to power 8% annual profit growth over the next three years. Toss in the dividend and shareholders could have a nice, low-risk total return
As a regulated utility, NiSource isn’t a stock that produces big earnings surprises. Analysts have good visibility into the company’s financials. But earnings beats can happen and did in both the third and fourth quarters of last year. With year-over-year growth expected in each of the next two quarters, the extremely cost-conscious NiSource leadership team could spark a run in the stock with even a modest EPS beat.
NiSource trades around 19x fiscal 2021 earnings which is a discount to its peer group average. Value investors will also appreciate the stock’s 3.4% dividend yield which is among the most generous in the mid-cap utilities space.
Is First Solar Stock a Buy?
After a 77% run last year, First Solar (NASDAQ: FSLR) is down 6% year-to-date. However, the sun hasn’t set on this long-term growth story and the second half of the year could be much brighter.
The solar technology company faces some tough comparisons in the next two quarters. Last year it benefitted from a spike in demand for residential solar systems as homebound consumers spent more time and money on their homes.
Yet with solar project activity still buzzing and the consensus second-half earnings estimate of $1.53 arguably conservative due to the uncertain economy, First Solar may be set up for some beat and raise quarters. The company delivered a huge earnings beat in the third quarter of last year that ignited a strong finish to 2020.
Expectations are low in the back half of the year because of higher freight costs and supply chain challenges that are impacting the solar industry (and many other industries). However, these are headwinds that are expected to subside heading into the new year.
First Solar’s $2.1 billion cash position and low debt level have it in a great position to grow alongside rising interest in renewable energy sources. Last year solar, wind, hydroelectric, and other renewables accounted for 21% of U.S. electricity generation. According to the Energy Information Administration (EIA), that figure is forecast to double over the next 30 years.
At 18x trailing earnings, First Solar stock is trading near the low end of its historical range and below its industry average. As the near-term challenges begin to dissipate in the back half of the year, look for First Solar stock to shine heading into 2022.