More than a handful of mid-cap stocks have been lagging in recent years, in the face of higher rates and a bleaker economic outlook. Though the mid-caps tend to be a choppier ride, beginner investors should still consider them as part of a diversified portfolio, given they may provide one with a better shot at outsized rewards. It’s far easier to double in size as a $3 billion company than it is for a $1 trillion company, given the immense room to grow market share.
For me, the mid-cap sweet spot tends to lie in the $1–5 billion range. Just because volatility is elevated relative to your average blue chip (at least in normal market conditions) does not mean they’re riskier. In some instances, mid-cap stocks may be a less risky pick than a mega-cap. It all comes down to the price you’ll pay and the width of the moats in the individual companies.
In this piece, we’ll check out two mid-cap stocks that I think could lead the way for the TSX Index going into the new year (and beyond).
Jamieson Wellness
Jamieson Wellness (TSX: JWEL) is an easy mid-cap ($1.2 billion market cap) to dismiss or overlook. The firm is in the boring business of vitamins, minerals, and supplements — a pretty commoditized industry. As one of the oldest mid-cap companies out there, though, its moat lies in its brand. It’s this brand that has allowed it to gain an edge over rivals in the ultra-competitive wellness and supplements scene.
The stock seems to be rebounding from its more than two-year funk, blasting nearly 33% off its October lows. I believe these gains are sustainable and could be the start of a move towards new highs. Though shares don’t look as cheap at 26.6 times trailing price-to-earnings, I do think JWEL’s growth runway (think of the growth possibilities in Asia) makes it worth a much higher price tag than is being offered today.
With a nice 2.6% dividend yield and a business that could withstand a coming recession, I’d not shy away from the name if you seek a multi-year growth darling to hold for the long haul.
Badger Infrastructure Solutions
Badger Infrastructure Solutions (TSX: BDGI), formerly Badger Daylighting, is in the niche business of mobile hydrovac soil excavation. In essence, the firm offers non-destructive excavation services for a wide range of firms. Many clients in the energy industry need Badger to dig up buried assets without damaging them.
In recent years, Badger has been on a wild ride. More recently, Badger has been climbing higher, thanks in part to strong quarterly results. Year to date, BDGI stock is up around 50%. That’s a huge climb for a firm that’s hibernated for quite a while. As the industry landscape (and Badger’s margins) looks to improve from here, I’d look for the stock to add to its recent gains. At 27.7 times trailing price-to-earnings, Badger still doesn’t look absurdly expensive as the fundamentals improve.
The Foolish bottom line
Mid-cap stocks can be promising plays for younger investors who are willing to stomach more volatility for a shot at better results over the longer haul. Jamieson and Badger are two mid-cap plays with a lot of potential and room to run.
