As they say, cash is king, especially in today’s environment. Sure, for large-cap tech names, the Covid-19 pandemic has produced some tremendous tailwinds. But, for some mid-cap stocks with hard-hit service industry operations, it’s been a different story.
The vaccine rollout is well underway. Yet, per recent remarks from Dr. Anthony Fauci, a return to normal may not happen until at least Christmas 2021. With this in mind, many stocks deemed recovery plays may have rallied all too soon. Think airlines, cruise lines, mall-based retailers, etc.
Yet, there are a few that can continue to weather the storm. I’m talking about cash-rich mid-cap names.
Not all of them have experienced headwinds during the outbreak. But each one appears more than fairly priced, when considering their current valuation, combined with the prospect of a “return to normal” in 2022.
So, which cash-rich mid-cap stocks fit the bill? Consider putting these five at the top of your watch list:
- Madison Square Garden Entertainment (NYSE:MSGE)
- Strategic Education (NASDAQ:STRA)
- Urban Outfitters (NASDAQ:URBN)
- Vishay Intertechnology (NYSE:VSH)
- Yelp (NYSE:YELP)
Mid-Cap Stocks: Madison Square Garden Entertainment (MSGE)
In a prior article, I discussed the story behind this company and its former sister companies. Shares in regional sport network operator MSG Networks (NYSE:MSGN) and sports team owner Madison Square Garden Sports (NYSE:MSGS) have performed well in recent months. But with plenty of cash, little debt, and a pathway to a post-pandemic recovery, MSGE stock is no slouch itself.
Looking at near-term results, things remain challenged for the entertainment venue operator. Revenues in the quarter ending Dec. 31 were $23.1 million versus $394.1 million in the prior year’s closing. Not a surprise, given its flagship venue has yet to reopen.
But with the New York City institution reopening, a recovery may be imminent. With possible pent-up demand, analysts interviewed by Barron’s in January set price targets on Madison Square Garden Entertainment stock. These targets ranged from $115 per share, to $145 per share. That’s a fair amount of upside from today’s prices.
Despite the massive pandemic-driven cash burn ($415.5 million in operating losses over the past 12 months), the company is still cash-rich, with $1.45 billion in cash on hand, against a $2.3 billion market capitalization. With enough capital in its coffers, this remains a solid pandemic play among mid-cap stocks.
Strategic Education (STRA)
The past year’s been tough for Strategic Education. The pandemic has affected its Strayer and Capella for-profit colleges. Also, as a Seeking Alpha contributor pointed out back in December, the Biden administration’s interest in ending what it calls “profiteering” in this industry, the company could experience rougher times ahead.
This explains why STRA stock has failed to recover since cratering in late summer and early fall. Yet, with investors fearing the worst, shares look cheap at today’s prices. Not only do shares trade for a low price-earnings ratio of 13.8x. With $738.2 million in cash, against a $2.3 billion market cap, it has plenty of cash to handle future challenges.
Wall Street analysts are starting to take notice of the opportunity here. BofA in December rated shares a buy with a $107 per share price target. The reason? Seeing risks as priced in, the BofA analysts are looking forward to stabilized enrollment numbers in 2021. Also, the potential from last year’s acquisition of the Australian operations of Laureate Education (NASDAQ:LAUR).
We may see a return to Obama-era regulations for for-profit colleges. But, attractive from a valuation and balance sheet perspective, and these overhanging risks priced-in, STRA stock is a mid-cap stock worth a look in today’s market.
Urban Outfitters (URBN)
With last fall’s vaccine breakthroughs, it’s no surprise retail play URBN stock has gone from under $20 to around $34 in the last six months. But, for investors late to the party, there may still be opportunity here.
Yes, Urban Outfitters shares are back to close to where they were before the outbreak. Yet, with projections calling for EPS to bounce back from 6 cents this past fiscal year (ending January 2021), to $1.86 in the current fiscal years, the stock’s cheap at 16.2x forward earnings.
Not only that, with a war chest of $625 million (against its approximately $3 billion market cap), the operator of Urban Outfitters and Anthropologie stores has plenty of dry powder to plow into new opportunities. Last August, the retailer announced its plans to build a $350 million omnichannel distribution facility in Kansas.
Pivoting towards the future of retail (e-commerce, subscription-based business models), while at the same time maintaining its bricks-and-mortar presence, this remains a solid recovery play among mid-cap stocks, with plenty of cash to make said recovery happen.
Vishay Intertechnology (VSH)
Unlike the stocks mentioned above, VSH stock has been much more resilient. Shares in the electronic components maker have performed well since last March’s coronavirus crash. No surprise, given how steady its financial results have been over the past year.
But, even after doubling from its lows, Vishay Intertechnology remains a cheap stock. In terms of valuation, shares are reasonably priced at 13.2x forward earnings. This isn’t a fast-growing company, as seen from its projected revenue growth of around 3.1% between 2021 and 2022.
Still, with $777.3 million in cash, Vishay (with a $3.4 billion market cap) has plenty of capital on hand to help move the needle. Whether that comes from investments to drive organic growth. Or, if it chooses to make some acquisitions that either boost growth, or are accretive to earnings, this maker of discrete semiconductors and passive components has options.
Taking into account its status as a “value stock,” coupled with its low single-digit projected growth rate, I wouldn’t buy this with the expectation of outsized performance. But, if you are looking for a lower-risk opportunity in today’s still-overheated stock market, VSH stock may be a great choice.
In general, tech stocks have crushed it over the past year. But the sector tailwinds haven’t been universal. For tech names with big exposure to the service economy, like Yelp, things have been quite challenging.
Sure, those who bought YELP stock while it languished around $20 per share have seen tremendous gains as of late. But, unlike other internet stocks, which have hit price levels above where they were pre-Covid, shares in this local service review platform have only now gotten back to prior price levels.
With its gradual bounce-back to prior prices now complete, should one expect shares to tread water going forward? Not so fast. Recently posting better-than-expected results, things continue to look up for Yelp. Coupled with around $596 million in cash (representing around 22% of its market cap), its well-positioned to continue exceeding expectations.
Investors have started to price in a full rebound into shares. YELP stock currently trades for around 27.6x analyst consensus for 2021 earnings. But, with the potential for earnings to climb another 48.8% in 2022, there may be plenty of runway ahead for this maturing ad-supported online platform.
On the date of publication, Thomas Niel held a long position in MSGN stock.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.