Mid-cap stocks are presenting a golden opportunity for investors, offering a compelling combination of stability and high-growth potential. According to a recent note from analysts at Goldman Sachs, mid-cap stocks are now trading at valuations that are lower than their historical medians, creating a window of opportunity for investors. Unlike the volatile small-cap space, where 35% of companies in the Russell 2000 Index (RUT) are reporting losses, only 9% of mid-caps in the S&P Midcap 400 ($IDX) are unprofitable.
Goldman Sachs strategist Jenny Ma highlighted that mid-cap earnings have grown faster than large-cap profits in two-thirds of the years since 2000, making them a historically reliable growth engine for investors. What's more, mid-cap stocks have a proven track record of outperforming their large and small-cap counterparts, especially in the months following Federal Reserve rate cuts.
That said, with a projected “13% return for the S&P 400 mid-cap index over the next 12 months” driven by enticing valuations and forecasts of continued economic expansion, it might be an opportune time to capitalize on the current window of opportunity. Among the top mid-caps listed by Goldman, here are three standout picks with consensus “Buy” ratings on Wall Street.
Growth Stock #1: Neurocrine Biosciences
California-based Neurocrine Biosciences, Inc. (NBIX) continues to strengthen its position as a leader in neuroscience-driven biopharmaceutical innovation. Leveraging its deep expertise in neuroscience, endocrinology, and immunology, the company excels at understanding how the brain, immune system, and hormones interact. This unique approach drives the development of its cutting-edge therapies for disorders like anxiety, depression, insomnia, stroke, malignant brain tumors, multiple sclerosis, obesity, and diabetes.
Plus, the company is turning heads with its FDA-approved drug, Ingrezza, which could be a game-changer for major depressive disorder (MDD), showing strong promise in easing depressive symptoms for those who haven’t found success with traditional therapies. Valued at around $12.3 billion by market cap, shares of this biopharma company have soared 8.7% over the past year.
At 18.99x forward adjusted earnings, NBIX is priced at a healthy discount to its five-year average multiple of 33.14x.
On Aug. 1, shares of Neurocrine gained more than 8% after the company reported stronger-than-expected Q2 earnings results. The company’s total revenue jumped a notable 30.4% year over year to $590.2 million and topped estimates by almost 8%, all thanks to Ingrezza’s stellar performance, which showcased a remarkable 32% annual jump in net product sales. This impressive growth was fueled by strong patient demand and enhanced gross-to-net dynamics, highlighting Ingrezza’s continued market success.
On an adjusted basis, the company earned $1.63 per share, reflecting a 30.4% year-over-year increase and exceeding forecasts by approximately 6.8%. As of June 30, the company held a robust $1.7 billion in cash, cash equivalents, and marketable securities. This substantial balance accounts for the $309 million used to fully retire its convertible senior notes, showcasing a strong financial position.
CEO Kevin Gorman expressed his excitement about the company's growth prospects, driven by Ingrezza’s ongoing success in treating tardive dyskinesia and Huntington's disease chorea. The CEO further added, “We are in the process of building our endocrinology team and expanding the INGREZZA salesforce, positioning our company for continued strong growth in the years ahead."
Management updated its fiscal 2024 outlook, raising its net sales guidance for Ingrezza to a range between $2.25 billion to $2.30 billion. Additionally, R&D expenses are anticipated to be between $665 and $695 million on a GAAP basis, while non-GAAP R&D costs are projected to range from $600 to $630 million.
Analysts tracking Neurocrine project the company’s bottom line to hit $4.19 per share in fiscal 2024, marking a notable 69.6% year-over-year increase. Looking forward to fiscal 2025, profit is forecasted to rise another 68.7% annually to $7.07 per share.
NBIX stock has a consensus “Strong Buy” rating overall. Out of the 26 analysts offering recommendations for the stock, 21 suggest a “Strong Buy,” and the remaining five give a “Hold” rating.
The average analyst price target of $166.71 indicates a potential upside of 36.3% from the current price levels. However, the Street-high price target of $193 suggests that NBIX could rally as much as 57.8%.
Growth Stock #2: Fluor Corporation
With a market cap of roughly $7.9 billion, Texas-based Fluor Corporation (FLR) leverages over a century of expertise in engineering, procurement, and construction to tackle its clients' most formidable challenges. With a global team of nearly 34,000 and a reputation for delivering safe, efficient, and expertly managed projects, this Fortune 500 company stands out as a powerhouse in its industry.
Shares of this engineering and construction company have rallied almost 30% over the past year, slightly outpacing the broader S&P 500 Index’s ($SPX) 26.6% gain during the same period. Plus, over the past six months, the stock is up 19.4%, overshadowing the SPX’s gains of 10.1% during this time frame.
From a valuation standpoint, FLR stock appears quite a bargain. Priced at 15.99 times forward earnings, the stock is trading well below its industry peers and its own five-year average of 50.45x.
The company announced its Q2 earnings results on Aug. 2, which crushed Wall Street’s bottom-line estimates. Although revenue of $4.2 billion fell slightly short of Wall Street’s forecasts, the top line increased by a respectable 7.3% year-over-year. The company’s Urban Solutions segment powered nearly 43.3% of Fluor’s total sales, showcasing its pivotal role in the company’s performance.
While revenue from Fluor’s Energy Solutions and Mission Solutions segments dipped slightly, its Urban Solutions division revenue skyrocketed by a notable 52.3% annually to $1.8 billion, fueled by the ramp-up of several newly awarded projects. Plus, the company’s adjusted EPS of $0.85 improved 11.8% year over year, and exceeded expectations by a solid 25% margin.
As of June 30, Fluor’s total backlog amounted to $32.3 billion, a notable jump from $29.4 billion in the same period last year. CEO David E. Constable said, “For the second half of 2024, our focus will be on deploying resources onto our high-value project backlog and positioning the company to return capital to shareholders.”
For fiscal 2024, management reaffirmed expectations for its adjusted EPS to range between $2.50 and $3.00. The company also tightened its adjusted EBITDA guidance to a more precise range of $625 million to $675 million, compared to the earlier range of $600 million to $700 million.
Analysts tracking Fluor expect the company’s profit to increase 6.2% year over year to $2.90 per share in fiscal 2024 and jump another 11.7% to $3.24 per share in fiscal 2025.
Overall, Wall Street is optimistic, with a consensus “Moderate Buy” rating for FLR stock. Of the eight analysts covering the stock, five advise a “Strong Buy,” and the remaining three recommend a “Hold.”
The average analyst price target of $53.38 indicates a 15.5% potential upside from the current price levels. The Street-high price target of $61 suggests that the FLR could rally as much as 32% from here.
Growth Stock #3: Sonoco Products Company
South Carolina-based Sonoco Products Company (SON) is a leading force in packaging, offering a diverse range of solutions from consumer and industrial packaging to protective and supply chain services. With a global workforce of 21,000 across more than 300 operations, Sonoco is a key partner for some of the world's top brands.
Valued at a market cap of roughly $5.5 billion, the company is almost flat on a YTD basis, but has bounced back from its lows with an 8.4% return over the past two months.
In terms of valuation, SON stock is trading at 11 times forward earnings, lower than its own five-year average of 13.48x.
Beyond its attractive valuation, the company is dedicated to rewarding its shareholders. On Sept. 10, Sonoco paid its shareholders a quarterly dividend of $0.52 per share. This brings its annualized dividend to $2.08 per share, offering a yield of 3.74%. This marks Sonoco’s 41st consecutive year of increasing its dividend, a testament to the company's unwavering commitment to rewarding shareholders and its long-standing financial strength.
Sonoco reported its Q2 earnings results on July 31, which revealed a mixed picture. Although net sales slipped slightly year-over-year to $1.6 billion, missing expectations, the company’s adjusted EPS of $1.28 surpassed Wall Street's forecasts.
While Consumer Packaging net sales slipped 4% year over year to $928 million, mainly due to a plant closure and lower pricing, net sales on the industrial Paper Packaging rose 3% annually to $601 million, fueled by organic volume gains in global paper and converted products, along with a lift from key acquisitions.
CEO Howard Coker said, “While the pace of Consumer volume recovery remains muted, we were pleased to see low single digit organic volume improvements in Industrials. Importantly, productivity was $51 million in the second quarter bringing our first half 2024 total to $102 million, well ahead of our full year outlook.”
For Q3, management forecasts adjusted EPS to range between $1.40 and $1.60. Moreover, in fiscal 2024, the company anticipates generating $650 million to $750 million in operating cash flow, along with adjusted EBITDA ranging from $1.05 billion to $1.09 billion.
SON stock has a consensus “Moderate Buy” rating overall. Of the five analysts covering the stock, three suggest a “Strong Buy,” one recommends a “Moderate Buy,” and one has a “Strong Sell” rating.
The average analyst price target of $60 indicates a potential upside of 7.8% from the current price levels, while the Street-high price target of $65 represents a premium of 16.7%.
On the date of publication, Anushka Mukherji 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.
