Mid-cap stocks often strike the right balance between having proven business models and market opportunities that can support $100 billion corporations. However, they face intense competition from scaled industry giants and can be disrupted by new innovative players vying for a slice of the pie.
These dynamics can rattle even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three mid-cap stocks to avoid and some other investments you should consider instead.
Brown-Forman (BF.B)
Market Cap: $12.63 billion
Best known for its Jack Daniel’s whiskey, Brown-Forman (NYSE: BF.B) is an alcoholic beverage company with a broad portfolio of brands in wines and spirits.
Why Does BF.B Worry Us?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Operating profits fell over the last year as its sales dropped and it struggled to adjust its fixed costs
Brown-Forman is trading at $27.00 per share, or 15.6x forward P/E. To fully understand why you should be careful with BF.B, check out our full research report (it’s free).
Quest (DGX)
Market Cap: $20.78 billion
Processing approximately one-third of the adult U.S. population's lab tests annually, Quest Diagnostics (NYSE: DGX) provides laboratory testing and diagnostic information services to patients, physicians, hospitals, and other healthcare providers across the United States.
Why Are We Wary of DGX?
- Sizable revenue base leads to growth challenges as its 5.3% annual revenue increases over the last five years fell short of other healthcare companies
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 9.7 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Quest’s stock price of $186.81 implies a valuation ratio of 17.7x forward P/E. If you’re considering DGX for your portfolio, see our FREE research report to learn more.
Bunge Global (BG)
Market Cap: $20.4 billion
With origins dating back to 1818 and operations spanning both hemispheres to balance seasonal harvests, Bunge Global (NYSE: BG) is an agribusiness and food company that processes oilseeds, grains, and other agricultural commodities into vegetable oils, protein meals, flours, and specialty ingredients.
Why Are We Cautious About BG?
- Annual sales declines of 3.7% for the past three years show its products struggled to connect with the market
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 19% annually, worse than its revenue
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $106.04 per share, Bunge Global trades at 12.8x forward P/E. Dive into our free research report to see why there are better opportunities than BG.
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