Wall Street has completed a fabulous second quarter, setting several new records. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — ended in positive for the three consecutive months of the last quarter, rallying 17.8%, 20% and 30.6%, respectively. Apart from the large-cap specific three major stock indexes, the mid-cap specific S&P 400 also witnessed a similar trend, advancing 23.3% in the last quarter.
The market is not yet out of the woods owing the rapid worldwide spread of coronavirus and its devastating impact on the U.S. and global economies. However, unprecedented fiscal and monetary stimulus given by the U.S. government and the Fed, and systematic reopening of the U.S. economy resulted in a series of better-than-expected economic data that led to an impressive market rally including for mid-cap stocks.
Better-Than-Expected Economic Data
Better-than-expected economic data of April, May and June, despite the fact that the aggregate economy is still way below its pre-lockdown level of activities, have shown fundamental stability of the U.S. economy.
The Department of Labor reported that the U.S. economy added 4.8 million jobs in June, well above the consensus estimate was 3.51 million. Moreover, May's job additions were revised upward from 2.509 million to 2.699 million. Notably, in April and March, the U.S. economy lost 22.1 million jobs due to lock downs. However, the economy regained 7.5 million jobs in the last two months.
The Department of Commerce reported that U.S. consumer spending jumped 8.2% in May, the largest monthly increase since early 1959. The Trump administration's decision to give unemployment insurance and stimulus checks to retirees greatly helped in reviving consumer spending, which constitutes around 68% of the U.S. GDP. A jump in retail sales in May and a quickly recovering housing market clearly indicate that consumer spending is gaining momentum.
The Institute of Supply Management reported that the U.S. manufacturing purchasing managers index jumped to 52.6% in June from 43.1% in May. Any reading above 50 means expansion in U.S. manufacturing, which constitutes 12% of the GDP. The Conference Board's consumer confidence index for June climbed to 98.1 in June from 85.9 in May.
Why Mid-Cap Stocks?
Investment in mid-cap (market capital > 1 billion but < 10 billion) stocks is often recognized as a good portfolio diversification strategy. These stocks combine attractive attributes of both small and large-cap stocks.
If economic impacts of coronavirus are more severe ahead, mid-cap stocks will be less susceptible to losses than their large-cap counterparts owing to less international exposure.
However, if the crisis doesn’t worsen or any good news surfaces on the treatment front, these stocks will gain more than small caps due to established management teams, a broad distribution network, brand recognition and ready access to capital markets. During the recovery phase, many of these mid-cap stocks may join the large-cap league.
Our Top Picks
We have narrowed down our search to five mid-cap stocks that have skyrocketed year to date and still have upside left. Each of our picks sports a Zacks Rank#1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Everbridge Inc. EVBG is a software developer which provides communications and enterprise safety applications internationally. The company has an expected earnings growth rate of 14.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 76.3% over the past 60 days. The stock has soared 87.6% year to date.
Wingstop Inc. WING franchises and operates restaurants under the Wingstop brand name. Its restaurants offer classic wings, boneless wings and tenders that are cooked to order, and hand-sauced and tossed in various flavors. The company has an expected earnings growth rate of 39.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 25.9% over the past 60 days. The stock has jumped 64.2% year to date.
BJ's Wholesale Club Holdings Inc. BJ is an operator of membership warehouse clubs primarily in East United States. It operates clubs and BJ's Gas locations in several states. The company has an expected earnings growth rate of 51.4% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved 28.5% over the last 60 days. The stock price has climbed 62.6% in the past month.
Virtu Financial Inc. VIRT offers a technology platform through which it provides quotations to buyers and sellers in equities, commodities, currencies, options, fixed income and other securities on exchanges, markets and liquidity pools. The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 0.8% over the last 7 days. The stock price has advanced 49.8% year to date.
Ollie's Bargain Outlet Holdings Inc. OLLI is a value retailer of brand name merchandise at drastically reduced prices. The company has an expected earnings growth rate of 14.3% for the current year (ending January 2021). The Zacks Consensus Estimate for current year earnings has improved by 18.5% over the last 60 days. The stock price has appreciated 42.8% year to date.
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BJs Wholesale Club Holdings, Inc. (BJ) : Free Stock Analysis Report
Virtu Financial, Inc. (VIRT) : Free Stock Analysis Report
Wingstop Inc. (WING) : Free Stock Analysis Report
Ollies Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
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