Midcap stocks offer higher growth prospects than large-cap stocks while less risky than small-cap stocks. Investors with longer investment horizons and moderate risk-taking abilities could invest in mid-cap stocks to earn superior returns. Meanwhile, here are my three top picks.
goeasy
goeasy (TSX: GSY) would be my first pick due to its consistent performance over the last 20 years and healthy growth prospects. The subprime lender has increased its revenue and adjusted EPS (earnings per share) in double digits over the previous 20 years, thus delivering over 2,300% returns at an annualized rate of 17.3%. In June, the company’s loan portfolio crossed $4 billion. Given its diversified lending model and expansion initiatives, it took just 14 months to grow its loan portfolio from $3 billion to $4 billion.
The Bank of Canada has slashed interest rates twice this year, and investors are hoping for one more cut. Besides, the United States Federal Reserve has indicated that rate cuts are on the horizon. Falling interest rates could boost economic activities, thus driving credit demand and expanding the addressable market of goeasy. Meanwhile, the company’s management expects its loan portfolio to reach $5.8-$6.2 billion in 2026, representing a 45% increase from June 30th levels. These expansions could boost its top line at an annualized rate of 14% while expanding its operating margin to 42% by 2026.
Further, goeasy also pays quarterly dividends and trades at 10.1 times analysts’ projected earnings for the next four quarters, making it an attractive buy.
Cargojet
Second on my list is Cargojet (TSX: CJT), which provides time-sensitive premium air cargo services to major North American cities. In the recently reported second quarter, the company’s revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 10.1% and 6.5%, respectively. Amid its strong performance, its free cash flows improved to $0.5 million compared to a net outflow of $18.5 million in the corresponding quarter of the previous year. It also repaid $102 million of debt during the second quarter, leading to a decline in its leverage ratio (net debt-to-adjusted EBITDA) from 2.6 at the beginning of the year to 2.3.
Meanwhile, the expansion of e-commerce has created a long-term growth prospect for Cargojet. In June, the company signed a three-year agreement with a Chinese e-commerce company to provide scheduled charter services three times a week between China and Canada. Its long-term contracts generate around 75% of its domestic revenue, providing financial stability. Further, its valuation also looks reasonable, with the company trading two times analysts’ projected sales for the next four quarters.
Lightspeed Commerce
My last pick is Lightspeed Commerce (TSX: LSPD), which has been under pressure this year. The concerns that a global slowdown could lower IT (information and technology) spending have made investors nervous, leading to a selloff. The company has lost around 35% of its stock value this year. However, I believe the correction is overdone, with the company’s next-12-month price-to-sales and price-to-book multiples at 1.8 and 0.9, respectively.
Moreover, the company continues to win new customers and increase its average revenue per customer. It is also focusing on expanding the adoption of its unified point of sales and payment offerings and introducing new innovative products, which could support its growth in the coming quarters. Its cost-cutting initiatives could continue to improve its profitability, with the management expecting its fiscal 2025 (which ends on March 31, 2025) adjusted EBITDA to come between $40 million and $45 million. The guidance represents a substantial increase from $1.3 million in fiscal 2024. Given its healthy growth prospects and discounted stock price, I expect Lightspeed Commerce to outperform over the next three years.
