Tuesday’s trading was perfect for small and mid-cap stocks. Although I stopped counting before I’d gotten through all 302 names hitting a 52-week high yesterday, two-thirds of the stocks were small- and mid-cap stocks, with just 10 large-caps over $100 million.
I’m not surprised smaller stocks are getting attention these days. Before Christmas, I said that small-cap stocks looked ready to take off. They sure did yesterday. If you’re a momentum investor, you’ve got plenty of options.
Traditionally, mid-cap stocks have been defined as those between $2 billion and $10 billion. Based on this range, I’ve got three to buy that should continue higher in 2024.
$2-5 Billion
Brookfield Business Corp. (BBUC) hit a 52-week high of $23.72 on Tuesday. Midway through Wednesday’s trading, it’s up another 1%. Year-to-date, its shares have gained more than 28%.
Brookfield Business Corp. is the corporate version of Brookfield Business Partners LP (BBU). It was created in March 2022 to give institutional investors who aren’t allowed to invest in limited partnerships the ability to invest in the private equity business. BBU unitholders received one BBUC share for 2 BBU units. They are economic equals.
The company’s assets operate in three primary segments: Industrials (32% of adjusted EBITDA in Q3 2023), Infrastructure Services (33%), and Business Services (35%). In the trailing 12 months ended Sept. 30, its adjusted EBITDA was $2.51 billion, 15.3% higher than a year earlier.
As of September 30, the company’s enterprise value, including the partnership units, BBUC exchangeable shares, and debt, was $20.68 billion, up from $20.45 billion at the end of 2022.
“We also continue to improve our operating performance. To put this in context, the EBITDA of the 20 businesses we acquired over the past five years has increased by over $300 million at our share,” stated Brookfield’s Q3 2023 shareholder letter.
“Most of this value creation has been achieved by taking a hands-on approach to enhancing business profitability. By acquiring higher-quality businesses and improving their performance, our overall Adjusted EBITDA margin has more than doubled to 19%
over the same five-year period.”
Yet, Brookfield’s units trade at 8x adjusted EBITDA, nearly 40% less than the average multiple for the S&P 500, providing excellent value heading into 2024.
$5-7 Billion
Mueller Industries (MLI) hit a 52-week high of $48.00 on Tuesday. Midway through Wednesday’s trading, it’s up nearly 1%. Year-to-date, its shares have gained more than 64%. Over the past five years, it's up 312%, 3.5x the S&P 500.
The manufacturer of copper, brass, aluminum, and plastic products for industrial uses has a market cap of $5.5 billion, with net cash of $1.07 billion. Based on 113.5 million shares outstanding, it trades at just 5.2x its net cash per share of $9.43.
Talk about a fortress-like balance sheet.
In the trailing 12 months ending Sept. 30, its revenues were $3.57 billion, with $835.2 million EBITDA and a 23.3% EBITDA margin.
The company’s latest Q3 2023 results might look bad -- revenues and earnings per share fell 13.2% and 14.6%, respectively, as businesses resumed more historical orders -- but it’s ideally situated to take advantage of organic and M&A opportunities in 2024.
With just one analyst covering its stock, it’s an opportunity to buy a well-run company currently flying under the radar, but not for much longer.
$7-10 Billion
Stantec (STN) is the second of two Canadian-based companies. It hit a 52-week high of $79.01 on Tuesday. Midway through Wednesday’s trading, it’s up nearly 1%. Year-to-date, its shares have gained more than 66%.
When you want to do a large infrastructure project, you contact Stantec. Based in Edmonton, the company started in 1954, when Harvard grad Dr. Don Stanley set up shop in Alberta, doing water and sewer projects for small municipalities.
Today, it has 28,000 employees worldwide. However, it’s only had five CEOs over its nearly 70-year history.
Stantec grows through a combination of organic sales and acquisitions. Its most recent acquisition was the purchase of Environmental Systems Design (ESD) on June 30 for CAD$137.3 ($103.9 million). The 270-person Chicago engineering firm expanded the company’s U.S. mechanical, electrical, and plumbing (MEP) by 40%.
“Our expanded services in data center, smart building design, and high-performance buildings will offer our clients the flexible and stable facilities that meet their operational needs into the future,” said Leonard Castro, executive vice president and business operating unit leader for Buildings at Stantec.
ESD is currently providing MEP and fire protection engineering for the 1.4 million square foot expansion of the Las Vegas Convention Center.
Of the 11 analysts that cover Stantec stock, nine rate it Overweight or Buy, with a $115 target price, 44% higher than where it’s currently trading.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
