Not every value investor will be interested in mid-cap stocks, but the principles of value investing can be applied to companies of all sizes, including those falling into the mid-cap range of $2 billion to $10 billion in market capitalization.
Including mid-caps in your value investing portfolio could bring certain advantages, including greater stability than small-cap stocks and the ability to invest while shares are at lower prices. However, mid-caps may have greater volatility than large-cap choices and may not be for those with low risk tolerance.
Following the principles of value investing when comparing mid-cap stock choices could make mid-cap investing a profitable strategy for the long term. Here are some of my favorite mid-cap picks that I believe show value characteristics.
Centene
A health care company that provides managed care and specialty services to government-sponsored health care programs such as Medicaid, Centene (CNC, Financial) is headquartered in St. Louis, Missouri. Right now, the stock is rated as a “buy” on Wall Street, since a recession could send more patients to Medicaid. Government efforts to see more citizens with health coverage could also boost Centene's growth.
GuruFocus gives Centene a GF Score of 84 out of 100, with the stock ranking higher in profitability, growth and financial strength than in value and momentum. GuruFocus does warn that, at $93.10, Centene may be overvalued, instead pricing it at a GF Value of $83.97.
Devon Energy
A company focusing on the exploration, development and production of oil and gas, Devon Energy (DVN, Financial) is based in Oklahoma City. With a price-earnings ratio of 7.36, Devon Energy has a dividend yield of 8.25%.
Most Wall Street analysts say to buy or hold Devon Energy since the company reported higher production in the second quarter. However, the GF Value chart rates the stock as overvalued by about $20 (it's currently trading at $56.75 per share).
Ambarella
A small semiconductor company, Ambarella (AMBA, Financial) designs components that are then manufactured by chip fabricators. Its specialty is computer vision semiconductors that use artificial intelligence to help a computer recognize what’s around it. Applications for this technology range from security cameras to autonomous vehicles.
For true value investors, the Santa Clara, California-based company won’t be at home in their portfolios because it isn’t turning a profit yet. Nevertheless, I believe that some unprofitable companies with good prospects can represent value. Ambarella has a GF Score of 76 out of 100.
Clover Health Investments
Clover Health Investments (CLOV, Financial), a health insurance company, merged with a SPAC and went public last year. Clover manages a Medicare Advantage insurance business, but what makes the company different is how its software can integrate with health care provider operations to streamline payments.
Clover Healthis another mid-cap that hasn’t yet turned a profit, but it is on that trajectory.
Vanguard Mid-Cap ETF
Value investors who want to experiment with mid-cap stocks may find that the easiest and safest option is an exchange-traded fund like the Vanguard Mid-Cap ETF (VO, Financial), which tracks the performance of the CRSP U.S. Mid-cap Index. This low-fee ETF invests in sectors such as technology, industrials, real estate, financial services, consumer cyclical and health care, the latter being an expected growth area for the rest of the year.
The Vanguard Mid-Cap ETF shows potential for long-term growth since the ETF has achieved a price increase of more than 49% over the past five years. The Vanguard Mid-Cap ETF is safer for investors who want to limit risk, or who do not feel comfortable evaluating the prospects of mid-cap companies.
