Editors' Pick: Originally published Dec. 30.
Risk-averse investors often flock to large-cap stock holdings for safety and stability, but mid-cap and small-cap stocks can provide return-friendly diversification.
Mid-cap stocks combine attributes of both large and small companies. Similar to large companies, these mid-size companies can have seasoned management teams, a strong market presence and access to capital markets, for instance. They can also grow quickly, with fewer layers of management and bureaucracy, and offer a more entrepreneurial spirit than large competitors, according to TIAA-CREF.
Small-cap stocks have their advantages too, says Morningstar. The stocks have potential to deliver high returns, but investors must also be patient with small-cap stocks that tend to be volatile as they grow (and possibly endure setbacks) and adjust to market sentiment (and being a public company).
Both mid-cap and small-cap companies can also be potential takeout targets to larger competitors, another possible reason for owning the stocks.
The proof is in the pudding for these 13 buy-rated stocks.
The companies on this list all have market capitalizations below $5 billion and are rated "Buy, A+" by TheStreet Ratings, TheStreet's proprietary ratings tool. To drill down even further, these companies were also identified as having high growth and high total returns, with each garnering five out of five stars in those categories from TheStreet Ratings.
TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equity market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014, beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Here's the list of mid-cap stocks to buy. When you're done be sure to check out Jefferies' 17 favorite U.S. stocks.
Industry: Health Care/Health Care Supplies
Market Cap: $704 million
12-Month Total Return: 14.5%
, together with its subsidiaries, develops, manufactures, and sells fluid delivery devices, and ophthalmic and cardiovascular products for medical applications primarily in the United States, Canada, and internationally.
12-Month Revenue Growth: 4.4%
12-Month Net Income Growth: 5%
12-Month EPS Growth: 10.1%
TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate ATRION CORP as a Buy with a ratings score of A+. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- ATRION CORP has improved earnings per share by 7.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. During the past fiscal year, ATRION CORP increased its bottom line by earning $14.08 versus $13.18 in the prior year.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Health Care Equipment & Supplies industry average. The net income increased by 1.5% when compared to the same quarter one year prior, going from $7.69 million to $7.80 million.
- ATRI's revenue growth trails the industry average of 30.2%. Since the same quarter one year prior, revenues slightly increased by 2.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- ATRI has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.04, which clearly demonstrates the ability to cover short-term cash needs.
- You can view the full analysis from the report here: ATRI