With the broader markets sinking lower, investors may wish to consider diversifying into some of the more promising mid-cap value plays. Indeed, there’s no shortage of such stocks on the TSX Index. And though the mid-caps were caught skating offside during last week’s brutal broad market selloff, I think some of the more punished names can better withstand a continuation of the market-wide meltdown should it continue into the midpoint of August.
Of course, the mid-cap names tend to be a choppier ride than many established large- and mega-cap stocks. So, why bother with such smaller firms when the stock market itself is already a stomach-churner after last week’s barrage of choppiness?
Bank of Canada rate cuts could come in quicker: That’s good news for mid-caps in the back half
The mid-cap stocks stand to do far better once interest rates begin dropping. With recession fears in the U.S. picking up a notch after some lacklustre job numbers, the Bank of Canada may be able to pick up the pace of its rate cuts from here. Indeed, with bond yields taking a step lower, it certainly seems like the costs of borrowing could fall markedly over the next 12-18 months.
As you may know, smaller companies tend to feel the weight of their debt loads heavier than the mega-caps.
As rates come down, the mid-cap names stand to benefit more. And if rates drop like a rock from here, perhaps the rotation to mid-cap stocks is only just beginning. Either way, Canadian investors should diversify across large- and mid-caps as rate cuts and recession fears become the name of the game moving forward.
Here are two intriguing TSX mid-cap plays that stand out as candidates that could take the podium in the coming weeks and months.
Badger Infrastructure Solutions: A top mid-cap stock for H2 2024
Badger Infrastructure Solutions (TSX: BDGI), formerly known as Badger Daylighting (I thought the old name was better), is a provider of non-destructive soil excavation solutions. As infrastructure (think energy and utilities) spending rises, BDGI stock could continue to feel the wind at its back. More recently, though, the stock has been on the retreat alongside the rest of the market.
With shares tanking 6% on Friday, the name is now off close to 18% over the past three months alone. Indeed, the plunge seems overdone, especially considering rates could fall markedly lower, allowing Badger to spend a bit more on growth efforts that would have otherwise gone to interest payments.
Sure, low rates aren’t here yet, but they’re likely coming. And while a Canadian recession would not bode well for Badger, I think a “no landing” scenario can be achieved as central banks backtrack on rates. With a nice 1.87% dividend yield and a modest 22.2 times trailing price-to-earnings (P/E) ratio, BDGI stands out as one of the top Canadian mid-cap stocks to watch.
If the sell-off intensifies, perhaps investors will get a chance to pick up shares in the low $30 range, where BDGI spent most of its time in the year prior to the melt-up that began in mid-2023.
All considered, the $1.2 billion mid-cap gem is just waiting to be unearthed by Canadian value hunters.
