The suddenness of the latest mid-cap melt-up was a hot topic of conversation last week. Though it’s hard to tell just how sustainable the upward move was, I think it’s safe to say that many investors were caught witnessing the move from the sidelines.
Indeed, it was all too easy to throw in the towel on the cheap mid-cap stocks in the last few years as they went nowhere fast. Even after the mid-cap pop, the iShares Core S&P Mid-Cap ETF (NYSEARCA:IJH) is up just 11% in the past year, far less than the 21% gain the large-cap-focused S&P 500 posted.
With the latest surge in mid-cap stocks and the recent slip in larger-cap names, showing more love to lesser-known companies makes sense as market breadth looks to improve. Indeed, mid-cap plays can be a choppier ride, but many such names offer next-level growth, and with relatively few watchers, perhaps they also have more to offer on the value front.
Williams-Sonoma (WSM)
Technically, Williams-Sonoma (NYSE:WSM) isn’t a mid-cap stock, with a $18.9 billion market cap. However, it’s still a small large-cap stock. The company was officially classified as a mid-cap stock less than a year ago.
Indeed, after a 125% past-year rally, the fast-rising member of the IJH ETF seems worth watching. Despite more than doubling in a year, shares of the upscale discretionary retailer look way too cheap at 18.1 times trailing price-to-earnings (P/E).
The company behind classy furnishing retailers West Elm and Pottery Barn has had a moment to shine, thanks to decent sales growth and operating margin expansion. While somewhat pricy, consumers view Williams’ goods as a decent value, given their quality. As discretionary incomes recover further, perhaps WSM stock could gain more as the firm doubles down on its digital-first efforts.
FiveBelow (FIVE)
FiveBelow (NASDAQ:FIVE) is a discount retailer popular among younger crowds. Lately, FIVE stock has been one of the biggest disappointments in the mid-cap universe, down close to 66% from its all-time highs, not seen since mid-2021.
Undoubtedly, it’s been a struggle to recover, and with CEO Joel Anderson stepping down for a job at Petco Health and Wellness Company (NASDAQ:WOOF), questions linger about whether investors should also leave.
Last month, Oppenheimer noted that the retailer’s “sputtering expansion engine” was a reason to be cautious about its name. Indeed, the $4.2 billion mid-cap retail growth sensation still has a ton of room to grow. But until FIVE stock shows more signs of hitting rock bottom, investors should be careful catching the falling knife as it hits new multi-year lows.
Casey’s General Stores (CASY)
Casey’s General Stores (NASDAQ:CASY) is a convenience store firm renowned for its delicious pizza. The stock has gone parabolic over the past few years, soaring 89% in the past two years alone. Though not a mid-cap stock anymore, with a valuation close to $14 billion, I still view CASY stock as one of the most promising growth stories for investors looking to rotate into the smaller, lesser-known grow their plays.
Indeed, convenience retail can be a competitive market. However, Casey’s has found a way to thrive, even as consumers aim to save more money. In June, Casey’s reported a stellar quarter alongside a dividend hike.
For the year, Casey’s sees same-store sales growth rising 3-5%. As the cash hoard grows, the firm may just be able to finance another value-adding acquisition. With one of the most durable growth stories in the mid-cap world, perhaps the premium of 28.0 times trailing P/E is worth paying, even with CASY stock at a fresh new high.
On the date of publication, Joey Frenette did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
