While large and small caps often receive the most attention in the market, mid-cap stocks (those with a capitalization between $2-10 billion), can be thought of as the “Goldilocks” of stocks — less volatile than small caps, but more room for growth than large caps.
In the spring newsletter, Baron Asset Fund Portfolio Manager Andrew Peck echoed this idea, writing that mid-caps offer compelling opportunities in today’s volatile markets.
“We believe mid-cap businesses offer the greatest growth potential at time of purchase, having developed beyond their initial, usually riskier, start-up phase, but not yet having reached the more mature stage of their life-cycle,” Peck wrote.
The All-In-One-Screener can be used to search for the most widely-held mid-cap stocks among the gurus as of the first quarter.
Avon Products (AVP, Financial)
Fifteen gurus currently hold positions in Avon as of the first quarter, with Donald Yacktman (Trades, Portfolio) as the largest shareholder with 8.23% of shares outstanding.
Avon is a direct-selling company that markets beauty and related products. The stock declined 55% over the past year and closed at $6.64 on June 16. In his 2014 annual shareholder letter, Yacktman wrote that while Avon is in the middle of a multi-year restructuring, the company has a valuable franchise and is undervalued.
Over the past 10 years, revenue grew by just 3%, while EBITDA declined 8%. In 2014, EBITDA per share was $1.08, down from $1.17 the year before.
Over the past five years, free cash flow declined about 10% and was $229 million in 2014. Avon has not posted a profit since 2012, and net loss was $389 million last year.
Energizer Holdings (ENR, Financial)
Fifteen gurus own shares of Energizer Holdings as of Q1; Mario Gabelli (Trades, Portfolio) is the largest shareholder with 2% of shares outstanding.
The company manufactures and markets batteries, portable lighting, and personal care products in the shave, skin care, feminine care, and infant care segments.
In the last year, the stock increased 13% and closed at $133.89 on June 16. The current P/E ratio is 51.1, while the P/S ratio is 2. Over the past 10 years, revenue grew by 6.7% and the EBITDA growth rate was 6.1%.
Over the past five years, net income increased marginally by 2%, recording at $356 million in 2014.
The current dividend yield is 1.5%, which is close to the two-year low, while the payout ratio is 75%.
CH Robinson Worldwide (CHRW, Financial)
Fourteen gurus currently hold CH Robinson in their portfolios, with Donald Yacktman (Trades, Portfolio) as the largest shareholder with 3.99% of shares outstanding.
CH Robinson is a third-party logistics company that provides freight transportation services and logistics solutions to companies. The stock price increased marginally by 2% over the last year, closing at $63.93 on June 16.
GuruFocus rates the business predictability as 4 out of 5 stars. The DCF calculator estimates a fair value of $56.51, with a -14% margin of safety. CH Robinson has had good growth rates both over the long and short-term. Both revenue and EBITDA grew by 12.5% over the past 10 years.
Net income in 2014 was $450 million, up from $416 million the year before. The graph below shows the income trend over time.
Chesapeake Energy (CHK, Financial)
Fourteen gurus hold positions in Chesapeake Energy as of the first quarter. Carl Icahn (Trades, Portfolio) owns the largest position with 10.98% of shares outstanding.
The stock dropped 58% over the past year due to plummeting oil prices, and closed at $12.53 on June 16. Chesapeake reported net income of $1,917 million in 2014, up from $724 million the year before.
The company has not reported positive free cash flow since 2005; the figure was $-1,984 million in 2014. The current dividend yield is 2.89% — close to the 10-year high — while the payout ratio is 21%.
Thirteen gurus hold stakes in Ansys as of the first quarter, with Ron Baron (Trades, Portfolio) as the largest shareholder with 3.76% of shares outstanding.
Ansys develops engineering software and services used in a broad spectrum of industries including academia, aerospace, automotive, energy and defense. The stock rose 21% over the past year and closed at $89.87 on June 16. The current P/E ratio is 33.38 and the P/S ratio is 8.95.
Over the past 10 years, the revenue growth rate was 16.7%, while EBITDA grew by 20.8%. EBITDA per share has grown consistently over time, recording at $4.57 in 2014.
Ansys has a healthy balance sheet with a current ratio of 2.38, meaning the company can easily cover its short-term obligations. In addition, Ansys has not held any long-term debt since 2011.
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