Mid-cap investing may not be every investor’s cup of tea, but for young investors who seek to maximize their risk/reward profiles, I believe the smaller market cap companies are worth consideration, especially if you see a firm you think you know better than anybody else! You see, mid-cap investing can help you get a shot at a greater reward, perhaps at the cost of more risk and volatility.
Indeed, mid-cap stocks don’t get nearly as much love from the media. And with fewer potential investors watching them, Mr. Market may be less efficient in pricing the share price of a mid-cap (vs. a large cap) at a price that’s in the ballpark of its intrinsic value.
So, if you’re a deep-value investor who wants a huge discrepancy between a stock’s market price and what it ought to be worth, mid-cap investing is definitely something to look into if you’ve got the time to put in the homework. Remember, as investors seeking to do better than the broader markets, we seek opportunities to pay three or even two quarters to get a dollar.
Of course, mid-cap stocks can also go under the radar for a while. So, patience is also key. If you’re a new TFSA investor, I’d argue stashing a few mid-caps in your TFSA may only serve to improve your portfolio’s overall diversification.
In this piece, we’ll check out two intriguing mid-cap stocks that I view as cheap right now.
PetValu Holdings
PetValu Holdings (TSX: PET) stands out as a relatively defensive growth company in the mid-cap scene right now. When times get tough, we still need to provide our pets with food and the occassional tasty treat. Though we may opt for the cheapest possible food when budgets are constrained, I think pet budgets could be the first to be raised once times improve. Indeed, even pets seem to be feeling the pinch of inflation these days! As conditions normalize and we can move past a recession, I view PetValu as a stealth growth play at a discount.
The stock trades at 22.4 times trailing price to earnings and is down 37% from its all-time high. I view PET stock as one of the best buy-the-dip plays (and 2023 laggards) to own for the new year. The 1.49% dividend yield is also a nice bonus!
Cineplex
Cineplex (TSX: CGX) has been decimated in recent years, thanks to the pandemic and the rise of streaming platforms. Dip buyers have likely had little to show for their bravery with the name, which has struggled to sustain a comeback.
In due time, I think Cineplex will recover as we all grow tired of streaming. Additionally, the company could continue to trim away in order to make it through future box office drought periods. Though this summer season was a big blockbuster year for the cinemas, the stock is back on the retreat again.
A turnaround hasn’t come easy for the $521 million company. With the sale of Player One Amusement Group, it certainly seems like the firm is well on track to improve the state of its balance sheet. In the face of tough times, that’s only prudent.
