Have you ever looked into the VanEck Morningstar SMID Moat ETF (BATS:SMOT)? If you haven’t, you should. The VanEck Morningstar SMID picks are some of the most attractive long-term investments. The ETF tracks the performance of the Morningstar US Small-Mid Cap Moat Focus Index, a collection of small and mid-cap companies that Morningstar believes have “sustainable competitive advantages and attractive valuations.”
SMID stocks are companies that can deliver both growth and stability. They also make sense because the standard definition of the small-cap — $250 million to $2 billion — and mid-cap — $2 billion to $10 billion — are too rigid.
MID caps allow you to move effortlessly between $250 million and $10 billion without the market-cap police giving you a ticket. It provides a broader field of possible options.
But the other thing about SMOT that is so darn appealing is that it is a smaller version of the very successful VanEck Morningstar Wide Moat ETF (BATS:MOAT), which has nearly $11 billion in net assets.
Now, SMOT might have less under management — $179 million — but at the very least, it will provide you with some SMID-stock inspiration.
Here are three I particularly like.
Williams-Sonoma (NYSE:WSM) is one of my favorite retail stocks, but not for the reasons you might think. I rarely, if ever, shop at any of its stores. However, I do like the job CEO Laura Alber does to keep the business on an even keel through good times and bad.
Since Alber became CEO in 2010, the company’s revenues have grown from $3.50 billion in 2010 to $8.67 billion in 2022. That’s a compound annual growth rate of 7.9%. On the bottom line, its CAGR for net earnings over the past 12 years is 15.5%, almost double its sales growth.
It’s up 28% over the past three months and 103% over the past five years, almost double the S&P 500. Down from an all-time high near $200 in 2021, WSM feels like it’s ready to go on another run.
On August 23, the company reported Q2 2023 results. As usual, WSM delivered exceptional earnings. Alber stated in its press release:
“We are pleased to deliver another quarter of strong earnings. We significantly exceeded profitability estimates with an operating margin of 14.6% with earnings per share of $3.12, well-above our pre-pandemic results. Our sales ran -11.9% in Q2, but our 2-year comp was essentially flat, and our 4-year comp to 2019 was +39.7%.”
Despite expected annual revenues falling by 5-10% in 2023, its operating margin of 15.5% at the midpoint of its guidance means it will make the same operating profits from last year on significantly lower sales.
Only some CEOs know how to work this trick. Alber does.
In May, it bottomed at $20.60. By mid-July, it was over $30. Whenever it gets near $30, it appears to back off. Despite this fact, it continues to win new users and advertisers.
On August 1, it reported Q2 2023 results. Its revenue rose 6% year-over-year to $708 million, while its non-GAAP net income was 84% higher to $142.1 million. Its top line was $12 higher than the analyst estimate, while adjusted earnings were 21 cents per share, nine cents better than the consensus.
However, the best data point in the quarter was the 8% increase in global monthly active users to 465 million. As this moves higher, so too do its top and bottom lines.
The most frustrating thing is its user base outside the U.S., Canada and Europe.
At the end of Q2 2023, its monthly active users (MAUs) in the rest of the world was 246 million (53% of its total), but its average revenue per user (ARPU) was just 12 cents or 2% of its ARPU in the U.S. and Canada. If that reached 10%, the increase in revenues and profits would be significant.
“Pinterest is increasingly shoppable and actionable, and we’re delivering better and more measurable performance for our advertisers,” stated CEO Bill Ready.
Your patience will be rewarded.
Dover (NYSE:DOV) is an industrial conglomerate with five operating segments that manufacture and produce many products that stay behind the scenes but are vital to its customer base.
Dover’s first half of the year, as expected, was sluggish. Sales fell 3% over last year’s first half, while adjusted net earnings were 7% lower. CEO Richard Tobin stated:
“We have a constructive outlook for the remainder of the year and see a solid foundation building for 2024. Underlying demand remains good across the portfolio, and a significant volume of business is already in the backlog. Our flexible business model and execution playbook are proven to deliver results in various operating conditions,”
In 2023, it expects 3% revenue growth at the midpoint of its guidance, with adjusted EPS of $8.93. Based on this estimate, it trades at a reasonable 16.4x 2023 EPS. That’s lower than its five-year average of 17.7x.
In 2021, it traded above $180. I don’t see why it can’t get back there in 2024.
On the date of publication, Will Ashworth 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.