7 Best Mid-Cap Stocks to Buy Now

Analysts love these mid-cap stocks for sleep-tight returns.

Large-cap, blue-chip stocks are the place to go for predictable, stable earnings and modest, long-term growth. Most Dow Jones Industrial Average components fit that description perfectly. A handful of small-cap stocks generate tremendous returns for investors, but small-cap stocks are also extremely risky and volatile, particularly in today’s uncertain environment. Mid-cap stocks with market capitalizations of between $2 billion and $10 billion can be the perfect solution for investors looking for significant potential upside without losing sleep at night. Here are seven of the best mid-cap stocks to buy in 2022, according to Morningstar analysts.

Williams-Sonoma Inc. (ticker: WSM)

Williams-Sonoma is a U.S. specialty retailer that sells high-end home furnishings. Analyst Jaime Katz says the market is pricing in an overly pessimistic outlook for post-pandemic home furnishings demand. Katz says Williams-Sonoma is better positioned to withstand an economic downturn than many of its peers because of its diverse customer base, which spans different ages and income ranges. She projects 5% annual repair and remodel sales growth over the next decade and says Williams-Sonoma is on track for $10 billion in annual sales by 2024. Morningstar has a “buy” rating and $227 fair value estimate for WSM stock, which closed at $108.15 on May 20.

Polaris Inc. (PII)

Polaris produces sports vehicles, such as off-road vehicles, snowmobiles and motorcycles. Katz says Polaris has tremendous brand value that makes it resistant to the negative impacts of inflation. However, supply chain disruptions could create supply volatility in the near term. Katz is projecting 12% organic revenue growth in 2022 and says Polaris’ competitive edge should gain the company market share over time. In addition, international expansion and acquisition opportunities, particularly in the marine and parts/accessories segments, could add to Polaris’ value in coming years. Morningstar has a “buy” rating and $184 fair value estimate for PII stock, which closed at $98.57 on May 20.

Gap Inc. (GPS)

Gap is a casual apparel and accessories retailer and owner of Old Navy, Gap, Banana Republic and other popular store brands. Gap shares are down 37% year to date as of May 20, making this stock the worst-performing mid-cap stock on this list. However, analyst David Swartz says Gap shares are “very undervalued” and the company is moving aggressively to fix Old Navy’s problems, including replacing its CEO and significantly discounting merchandise to clear its inventory. In the meantime, Swartz says, Gap is in no danger of falling into financial distress. Morningstar has a “buy” rating and $28 fair value estimate for GPS stock, which closed at $10.93 on May 20.

Hanesbrands Inc. (HBI)

Hanesbrands is one of the world’s largest producers of intimate apparel and other leisure wear. Swartz says Hanesbrands is the clear market leader in innerwear, which represented about 60% of the company’s 2021 revenue. While the company battles headwinds from inflation and supply chain disruptions, Swartz says the company’s high exposure to replenishment apparel categories makes it relatively well positioned in the difficult environment. He says the company’s Hanes and Bonds brands generate pricing leverage, and he anticipates Hanes will maintain roughly 20% U.S. innerwear operating margins. Morningstar has a “buy” rating and $26 fair value estimate for HBI stock, which closed at $11.63 on May 20.

Boston Beer Co. Inc. (SAM)

Boston Beer is one of the largest craft brewers in the U.S. and the maker of Samuel Adams, Dogfish Head and Truly Hard Seltzer brand beverages. Katz says Boston Beer’s distributor inventory levels have significantly improved heading into the critical summer season. In the first quarter, revenue was down 21% from a year ago but still up 30% from 2020 levels. Katz says Boston Beer’s full-year gross margin guidance of between 45% and 48% suggests significant cost leverage improvement throughout the remainder of the year. Morningstar has a “buy” rating and $740 fair value estimate for SAM stock, which closed at $329.21 on May 20.

Nordstrom Inc. (JWN)

Nordstrom is a specialty apparel and accessories retailer that operates roughly 380 stores in North America. Nordstrom shares have held up relatively well in a difficult environment so far in 2022. In fact, the stock is down just 6% on the year, making it the best-performing mid-cap stock on this list. Swartz says Nordstrom is positioned for a turnaround after several years of underperformance. He says Nordstrom has a loyal customer base and a valuable brand known for differentiated products and an emphasis on service. Morningstar has a “buy” rating and $43.50 fair value estimate for JWN stock, which closed at $21.18 on May 20.

Equitrans Midstream Corp. (ETRN)

Equitrans Midstream is a natural gas gathering, storage and transmission company focused on the Appalachian Basin. Analyst Stephen Ellis says Equitrans’ biggest challenge remains getting its Mountain Valley Pipeline into service following multiple legal and permitting setbacks. The pipeline is already well over its original budget and years behind schedule, and Ellis says Equitrans’ management has lost nearly all of its credibility on its forecasts. However, he says the current energy environment will pressure regulators to approve the pipeline given the need for U.S. liquid natural gas. Morningstar has a “buy” rating and $14 price target for ETRN stock, which closed at $7.57 on May 20.

The 7 best mid-cap stocks to buy now:

— Williams-Sonoma Inc. (WSM)

— Polaris Inc. (PII)

— Gap Inc. (GPS)

— Hanesbrands Inc. (HBI)

— Boston Beer Co. Inc. (SAM)

— Nordstrom Inc. (JWN)

— Equitrans Midstream Corp. (ETRN)

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7 Best Mid-Cap Stocks to Buy Now originally appeared on usnews.com

Update 05/23/22: This story was published at an earlier date and has been updated with new information.

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