Mid-cap stocks have the best odds of scaling into $100 billion corporations thanks to their tested business models and large addressable markets. But the many opportunities in front of them attract significant competition, spanning from industry behemoths with seemingly infinite resources to small, nimble players with chips on their shoulders.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here is one mid-cap stock with huge upside potential and two that could be down big.
Two Mid-Cap Stocks to Sell:
Lennar (LEN)
Market Cap: $23.32 billion
One of the largest homebuilders in America, Lennar (NYSE: LEN) is known for constructing affordable, move-up, and retirement homes across a range of markets and communities.
Why Do We Think LEN Will Underperform?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 9.2% decline in its backlog
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 8.9% annually while its revenue grew
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Lennar is trading at $87.38 per share, or 13.2x forward P/E. If you’re considering LEN for your portfolio, see our FREE research report to learn more.
Elanco (ELAN)
Market Cap: $12.01 billion
Originally established as a division of pharmaceutical giant Eli Lilly before becoming independent in 2018, Elanco Animal Health (NYSE: ELAN) develops and sells medications, vaccines, and other health products for pets and farm animals across more than 90 countries.
Why Are We Hesitant About ELAN?
- 4.9% annual revenue growth over the last five years was slower than its healthcare peers
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 2.9 percentage points
- Negative returns on capital show that some of its growth strategies have backfired
At $23.11 per share, Elanco trades at 22.4x forward P/E. Read our free research report to see why you should think twice about including ELAN in your portfolio.
One Mid-Cap Stock to Buy:
Ares (ARES)
Market Cap: $29.95 billion
With roots in the leveraged finance group of Apollo Management, Ares Management (NYSE: ARES) is an alternative investment firm that manages private equity, credit, real estate, and infrastructure assets for institutional and high-net-worth clients.
Why Is ARES a Top Pick?
- Market share has increased this cycle as its 23.2% annual revenue growth over the last five years was exceptional
- Earnings growth has easily exceeded the peer group average over the last five years as its EPS has compounded at 21.3% annually
Ares’s stock price of $120.76 implies a valuation ratio of 20.1x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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