- Alcoa (AA): Aluminum prices are skyrocketing, fueled by fears over a potential supply crunch.
- Cleveland-Cliffs (NYSE:CLF): The steelmaker is poised to benefit from a tight steel market.
- Cognex (NASDAQ:CGNX): The machine-vision company has significant growth potential, driven by logistics spending and EVs.
Mid-capitalization (cap) stocks typically benefit from cyclical upturns in the economy that help them outperform their larger counterparts. They also offer diversification benefits when combined with other asset classes, implying the potential for higher returns with little additional risk.
Wall Street points out that mid-caps offer the agility, innovation, and high growth features of small-caps. Yet they also include the extra benefits of well-established products and higher liquidity.
Meanwhile, the widely-followed S&P 400 MidCap index is currently down 7.8% year-to-date (YTD). Mid-cap names in the index have not been spared the volatility of the past few months.
But long-run data is on the side of investors. For instance, research by Nobel Laureate Eugene Fama highlights that small- and mid-cap equities have consistently outperformed large-cap equities over the long term.
Extending their study into recent years, we see that small- and mid-cap equities returned an average of 2.1 percentage points more per year than large-cap equities.
With that information, here are three mid-cap stocks to buy after the recent decline in share prices.
| AA | Alcoa Corporation | $85.22 |
| CLF | Cleveland-Cliffs Inc. | $31.25 |
| CGNX | Cognex Corporation | $76.00 |
Mid-Cap Stocks to Buy: Alcoa (AA)
Our first mid-cap name is Alcoa (NYSE:AA). This vertically integrated aluminum company produces the aluminum inputs bauxite and alumina, as well as finished aluminum. It is the largest bauxite miner and alumina refiner worldwide by production volume.
Alcoa released fourth-quarter 2021 results on Jan. 19. Revenue jumped 40% year-over-year (YOY) to $3.3 billion. Adjusted net income was a record $475 million, or $2.50 per diluted share, up from $49 million a year ago. Cash and equivalents ended the period at $1.9 billion.
Aluminum prices are skyrocketing due to supply concerns. Australia, the world’s largest exporter of alumina, recently announced a ban on all export of alumina and bauxite to Russia. Analysts concur that the growing supply and demand mismatch is a win-win for Alcoa.
AA stock has gained 170% over the past 12 months. Despite the recent gains, shares are trading at 9.6 times forward earnings and 1.4 times trailing sales.
Meanwhile, the 12-month median price forecast for Alcoa stock stands at $89.50. Potential investors could consider buying AA shares around these levels.
Cleveland-Cliffs (CLF)
Our second stock on the mid-cap list is Cleveland-Cliffs (NYSE:CLF). The group is the largest flat-rolled steel and iron ore pellet manufacturer in North America. The company runs a vertically integrated business. It ranges from mined raw materials to primary steelmaking and downstream finishing, tooling, as well as tubing.
The steelmaker issued Q4, 2021 results on Feb. 11. Revenue soared 137% YOY to $5.3 billion. Net income skyrocketed 1,100% to $899 million, or $1.69 per diluted share, compared to $74 million in the prior-year quarter. As of February 2022, the company had total liquidity of $2.6 billion.
Russia and Ukraine are large exporters of pig iron, or crude iron. Prices have surged by more than 50% since Russia invaded Ukraine.
However, Cleveland-Cliffs has invested in a process that uses an alternative natural-gas-based plant. The result is the “hot-briquetted iron (HBI), an environmentally friendly alternative to imported pig iron.” Put another way, the steel giant is effectively shielded from supply disruptions.
CLF stock has risen 43% YTD. Yet, shares look cheap at 5.1 times forward earnings and 0.9 times trailing sales.
The 12-month median price forecast for Cleveland-Cliffs stock is at $31. A potential decline of 3%-5% in CLF shares would improve the margin of safety for long-term investors.
Mid-Cap Stocks to Buy: Cognex (CGNX)
Our final mid-cap stock is Cognex (NASDAQ:CGNX). It manufactures machine vision systems, software and sensors used in automated manufacturing. Its products can identify parts, detect potential defects as well as verify product assembly.
Cognex announced Q4, 2021 results on Feb. 17. Revenue increased 9% YOY to $244 million. Adjusted net income came in at $53.5 million, or 30 cents per diluted share, down from $69.3 million in the prior-year quarter. Cash and equivalents ended the period at $907 million.
Looking ahead, management sees significant upside potential within its end markets. Logistics and electric vehicles (EVs) are likely to be the primary drivers.
CGNX stock has declined 8% over the past 12 months. Yet, despite the decline, shares still command a premium at 44.6 times forward earnings and 13.7 times trailing sales.
Finally, the 12-month median price forecast for Cognex stock stands at $80. Interested readers would find better value around $75.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
