While large-cap stocks tend to outperform during periods of economic uncertainty, small- and mid-cap stocks tend to outperform during economic recoveries. And compared to small-caps, mid-cap stocks typically possess lesser risk because their businesses are relatively more diversified. Moreover, mid-cap stocks usually have better access to capital compared to their small-cap counterparts. Given the ongoing fast-paced economic recovery and easy access to capital thanks to an accommodative monetary policy, several mid-cap stocks could be well positioned to outperform their small- and large-cap counterparts.
In fact, the mid-cap stocks have outperformed the small-cap ones over the past three months, a period which witnessed a steady economic recovery. This is evident from the iShares Core S&P Mid-Cap ETF’s (IJH) 15% returns over this period compared to the iShares Core S&P Small-Cap ETF’s (IJR) 13% gains. The returns also compare favorably to the iShares Core S&P 500 ETF’s (IVV) 10.5% returns over the same time frame.
The ratings of Discover Brunswick Corporation (BC) and Axalta Coating Systems Ltd. (AXTA) have recently been upgraded by Wall Street analysts. Given the favorable backdrop, it could be wise to bet on these mid-cap players now.
Brunswick Corporation (BC)
BC designs, manufactures, and markets recreational marine products, including marine propulsion products, parts and accessories, and boats, and operates service and shared access businesses, including the boat club. The company operates through the following segments: Propulsion, Parts & Accessories, and Boat. Citi Group recently upgraded the stock’s rating from ‘Neutral’ to ‘Buy.’
BC’s revenue increased 49.4% year-over-year to $1.43 billion for its fiscal first quarter ended April 3. The company’s operating income was $231.9 million, which represents a 124.7% year-over-year increase. Its net income was $169.4 million, which represents a 139.6% year-over-year increase. Its EPS came in at $2.15, up 152.3% year-over-year.
Analysts expect BC’s EPS to increase 76.8% year-over-year to $1.75 for the current quarter, ending June 30, 2021. BC surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to come in at $1.31 billion for current quarter, which represents a 32.6% rise year-over-year.
On April 14, BC formed a partnership with Carnegie Robotics LLC. The collaboration will combine Carnegie’s depth and breadth in autonomous technology with Brunswick’s leadership position in the marine industry and execution of its ACES (Autonomy, Connectivity, Electrification and Shared Access) strategy, to create advanced driver assistance and autonomous solutions to improve the boating experience across a range of applications and scenarios. This should l give both the companies sufficient capacity to increase the company’s revenue, along with an increase in its footprint in the marine connectivity sector. The stock has gained 127.4% over the past year and closed yesterday’s trading session at $105.45.
BC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Quality and a B grade for Sentiment and Momentum. Click here to access BC’s ratings for Growth, Stability, and Value.
BC is ranked #7 of 33 stocks in the A-rated Athletics and Recreation industry.
Note that BC is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
Axalta Coating Systems Ltd. (AXTA)
AXTA is a manufacturer, marketer and distributor of coatings systems, serving primarily the transportation industry. The company's operating segments are Performance Coatings and Transportation Coatings. Susquehanna has upgraded AXTA’s rating from ‘Neutral’ to ‘Positive.’
For its fiscal year 2021 first quarter, ended March 31, AXTA’s revenues increased 8.1% year-over-year to $1.06 billion. Its $52.6 million in income from operations includes a significant operating charge. Its adjusted EBIT increased 37.8% to $182.8 million, a record for first quarter results. And its cash flow from operations and free cash flow were $39.6 million and $11.3 million, respectively.
Analysts expect AXTA’s EPS to come in at $0.46 for the current quarter, ended June 30, 2021, up 406.7% year-over-year. AXTA surpassed consensus EPS estimates in three of the trailing four quarters. Its revenue is expected to increase 10.7% year-over-year to $1.14 billion for quarter ending September 30, 2021.
On April 22, AXTA announced the launch of Axalta Mobility Coatings, a rebranding of its Transportation Coatings business unit. The redefined business will focus more on supporting the accelerating demand for e-mobility and the evolving coatings needs of established and emerging light and commercial vehicle original equipment manufacturers (OEMs), fleet owners, and shared mobility providers. The move will surely increase operational revenue and help reduce costs. The stock has gained 69.4% over the past year and closed yesterday’s trading session at $32.63.
It’s no surprise that AXTA has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has a B grade for Quality and Growth also. Click here to see the additional POWR Ratings for KEY (Sentiment, Value, Momentum and Stability).
AXTA is ranked #43 of 100 stocks in the A-rated Chemicals industry.
BC shares were trading at $105.27 per share on Thursday afternoon, down $0.18 (-0.17%). Year-to-date, BC has gained 38.49%, versus a 12.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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