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4 Mid-Cap Growth Stocks to Add to Your Watchlist

Investors’ interest in financially strong mid-cap companies has been growing because these companies reside in the sweet spot between risky small-cap companies and large-cap companies whose growth potential is already factored into their share prices. So, we think it may be wise to invest in mid-cap companies AGCO Corporation (AGCO), Arrow Electronics (ARW), Encompass Health (EHC), and Tempur Sealy(TPX) because they possess solid growth attributes. Let’s take a closer look at these names.

Even though investors have been rotating out of expensive growth stocks over the past few months, the performance of mid-cap stocks has been impressive so far this year. This is evident in the iShares Core S&P Mid-Cap ETF’s (IJH) 17.4% returns year-to-date compared to the large-cap focused iShares Core S&P 500 ETF’s (IVV) 12.1% returns.

While small-cap stocks tend to outperform during economic recoveries, they also possess high risk. In contrast, even though large-cap stocks are more stable in terms of returns, their growth potential is already factored into their share prices this year. So, mid-cap stocks reside in the sweet spot in between the two classes of stock. And we think it is wise to invest in shares of mid-cap companies that are well-established in their markets and possess solid growth attributes.

So, for investors looking to bet on mid-cap growth stocks now, we think AGCO Corporation (AGCO), Arrow Electronics, Inc. (ARW), Encompass Health Corporation (EHC), and Tempur Sealy International, Inc. (TPX) could be solid bets.

AGCO Corporation (AGCO)

AGCO operates as a manufacturer and distributor of agricultural equipment and related replacement parts. Its offerings include tractors, combines, hay and forage tools and sprayers. The company markets its products under several brands, such as Challenger, Fendt, GSI and Massey Ferguson, and distributes its products through a network of independent dealers and distributors. It has a market capitalization of $10.06 billion.

For its fiscal first quarter ended March 31, 2021, AGCO’s total revenue increased 23.4% year-over-year to $2.40 billion. Its net income increased 133.1% from the same period last year to $150.80 million. And its EPS came in at $2.00 for the quarter, up 132.6% year-over-year.

AGCO’s revenue has grown at a 3.4% CAGR over the past three years, while its EPS and EBITDA have grown at CAGRs of 35.3% and 11%, respectively.

The company’s EPS and revenue are expected to increase 102.7% and 36.7%, respectively, year-over-year to $2.25 and $2.74 billion for the current quarter, ending June 30, 2021. AGCO surpassed consensus EPS estimates in each of the trailing four quarters.

On April 22, 2021 AGCO announced that it is implementing a new capital return framework to enhance the company’s ability to return cash to shareholders across a variety of market conditions. Its CEO Eric Hansotia said, “This new capital return framework balances AGCO’s continued commitment to returning cash to shareholders while limiting shareholder concentration and supporting liquidity in the company’s common stock.” The stock has gained 38.7% over the past six months to close yesterday’s trading session at $133.44.

AGCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has an A grade for Growth and Value, and a B grade for Sentiment. Click here to access AGCO’s ratings for Stability, Momentum and Quality also.

AGCO is ranked #2 of 31 stocks in the Agriculture industry.

Arrow Electronics, Inc. (ARW)

With a market capitalization of $9.12 billion, ARW is a global distributor of electronic components and enterprise computing solutions. It sells semiconductors, passive components, interconnect products, computing and memory and computer peripherals to more than 180,000 equipment and contract manufacturers, resellers, and other commercial customers. The company's segments include the global components business, the global enterprise computing solutions (ECS) business, and corporate business.

ARW’s sales surged 31.4% year-over-year to $8.40 billion for its fiscal first quarter ended April 3, 2021. ARW’s net income came in at $206.32 million for the quarter, up 316.8% from the prior-year period. And its EPS increased 345.2% year-over-year to $2.80.

ARW’s revenue has grown at a 5.3% CAGR over the past five years. The company’s EPS has grown at a 26.2% CAGR over the past three years.

Analysts expect ARW’s EPS to increase 84.3% from the prior-year quarter to $2.93 for the current quarter, ending June 30. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Its revenue is expected to be $8.56 billion for the quarter ending September 30, 2021, which represents a 27.4% year-over-year rise.

In March, ARW announced an agreement with NVIDIA Corporation (NVDA) to distribute its professional visualization product portfolio, incorporating ARW’s full services offering to designers and engineers. As the demand for advanced technologies continues to rise, this alliance is expected to provide an edge to ARW over its peers thanks to the comprehensive suite of AI-based solutions. ARW’s stock has rallied 85.9% over the past year to close yesterday’s trading session at $123.65.

ARW’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It also has a B grade for Value and Growth. In addition to these ratings, one can see ARW’s ratings for Stability, Sentiment, Momentum and Quality here.

ARW is ranked #12 of 45 stocks in the B-rated Technology-Electronics industry.

Encompass Health Corporation (EHC)

Post-acute healthcare services provider EHC offers both facility-based and home-based post-acute services across 36 states and Puerto Rico through its network of inpatient rehabilitation hospitals, home health agencies and hospice agencies. It has a market capitalization of $8.62 billion. The company operates through two segments: Inpatient Rehabilitation, and Home Health and Hospice.

EHC’s net sales came in at $1.23 billion for its fiscal first quarter, ended March 31, 2021, which represents a 4.1% rise from the prior-year period. Its net income for the quarter came in at $107.30 million, up 27.3% year-over-year. Its EPS increased 22.7% year-over-year to $1.10.

The company’s revenue has grown at a 5.4% CAGR over the past three years, while its total assets have grown at a 9.8% CAGR.

For the current quarter, ending June 30, analysts expect EHC’s EPS and revenue to increase 212.9% and 19.9%, respectively, year-over-year to $0.97 and $1.26 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters.

On May 4, 2021, EHC and Piedmont Healthcare announced that they had executed a joint venture agreement to operate inpatient rehabilitation hospitals in Georgia. The partnership includes the construction of a new 40-bed, freestanding inpatient rehabilitation hospital near the Piedmont Columbus Regional Northside Campus. The initiative is expected to expand the company’s market reach and enable it to provide its services to a larger number of patients. The stock has gained 18.4% over the past year to close yesterday’s trading session at $86.64.

It’s no surprise that EHC has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has a B grade for Stability, Sentiment and Growth. Click here to see the additional POWR Ratings for EHC (Value, Momentum and Quality).

EHC is ranked #3 of 11 stocks in the A-rated Medical-Hospitals industry.

Click here to checkout our Healthcare Sector Report for 2021

Tempur Sealy International, Inc. (TPX)

Bedding manufacturer TPX operates through two segments: North America and International. Its products include mattresses, foundations and adjustable foundations, pillows, mattress covers, sheets and cushions. The company’s brand portfolio includes TEMPUR, Tempur-Pedic, Sealy, Sealy Posturepedic, and Stearns & Foster. It has a $7.23 billion market capitalization.

For the fiscal first quarter ended March 31, 2021, TPX’s total revenue increased 26.9% year-over-year to $1.04 billion. Its net income increased 118.6% from the same period last year to $130.50 million. And its EPS came in at $0.64 for the quarter, up 128.6% year-over-year.

TPX’s revenue has grown at a 14.2% CAGR over the past three years. Its EPS and EBITDA have grown at CAGRs of 35.6% and 25%, respectively.

Analysts expect TPX’s EPS to increase 188.2% year-over-year to $0.49 for the current quarter ending June 30. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Its revenue is expected to be $1.08 billion in the current quarter, which represents a 62.1% year-over-year rise.

Last month, TPX announced that its board of directors had increased the authorization under its share repurchase program to a total of $400 million. The company is expected to repurchase at least 6% of shares outstanding in 2021. This reflects TPX’s commitment to grow its operations. The stock has gained 143.6% over the past year to close yesterday’s trading session at $36.71.

TPX’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. It also has an A grade for Growth, and a B grade for Momentum, Sentiment and Quality. In addition to these ratings, one can see TPX’s ratings for Value and Stability here.

TPX is ranked #9 of 63 stocks in the A-rated Home Improvement & Goods industry.

Click here to checkout our Retail Industry Report for 2021


AGCO shares were trading at $136.80 per share on Tuesday morning, up $3.36 (+2.52%). Year-to-date, AGCO has gained 36.55%, versus a 12.39% rise in the benchmark S&P 500 index during the same period.



About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.

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