3 Growing Mid Caps for the Long Term
Anthony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Today I searched for mid-cap stocks that are delivering strong profit margins and are expected to grow significantly in the next year. These stocks provide exciting opportunities and potential to outperform the market over the long term.
How to Find These Stocks
- Mid-cap stock
- Profit margin over the past 12 months of greater than or equal to 30%
- EPS growth in the next fiscal year forecasted at 30% or higher
- A return on assets of greater than or equal to 10%
The following is a five-year price chart for these companies so that we can compare their performance against that of the S&P 500 for the same time period, in search of companies with the potential to outperform over the long haul.
Two of the three companies have outperformed the S&P 500 index over these five years. This performance does not include dividends or distributions, which add to their return.
The Electricity of Dynegy
Dynegy engages in the production and sale of electric energy, capacity, and ancillary services in the United States. The company sells electric energy, capacity, and ancillary services on a wholesale basis.
Dynegy is expected to lose 16 cents per share this year, but is expected to earn 3 cents per share next year. Over the next five years, it is expected to grow earnings by 7.6% annually.
In looking at the most recent balance sheet of the company for the quarter ending in March of 2013, it is strong. The company's largest asset class by far is property, plant, and equipment. The company has $402 million in cash and total liabilities make up less than 50% of total assets. It has a large capital surplus of $2.6 billion.
In looking at its most recent 10-Q for the quarter ending in March 2013, there are some notable improvements from the year ago period. Revenue increased by 19% year over year. The company has emerged from bankruptcy, and these improved revenue numbers bode well going forward as the balance sheet is solid. It has $715 million in available liquidity including its revolving loan agreement and its cash on hand.
Is Rangold Golden?
Randgold Resources engages in the exploration and development of gold deposits in Sub-Saharan Africa. It is part of the Nasdaq 100.
Rangold Resources is an earnings machine. It is expected to earn $4.40 per share this year and $6.39 per share next year. Earnings per share a year ago, however, were $4.65 per share. Over the next five years, it is expected to have earnings growth of 8.5% per year.
The company has had expectations for earnings lowered recently though, and that definitely could be why the share price is trading toward the lower end of its 52-week range.
This company offers investors a chance at a stock that gives them exposure to emerging markets. It also is a company with high profitability, making it a less risky investment as it is a solid business. Furthermore, it offers a potential investor a chance at reaping the rewards if gold resumes its climb in price.
In looking at the company's recent earnings announcement, there were positive events. Gold production increased in the quarter ending in March of 2013 compared to March of 2012. The Kibali mine was almost ready for operation at that point. Its dividend was increased by 25%, which improves shareholder return for long-term investors. Its annual production and cost guidance remained in line with what was forecasted earlier.
Can Inergy Propel You to Profits?
Inergy engages in the storage and transportation of natural gas and natural gas liquids (NGL) in the United States and Canada. The company owns a 66% interest in Inergy Midstream, another publicly traded entity.
It is important to note that Inergy is a Master Limited Partnership, which means that its distributions to shareholders are not taxed as ordinary or qualified dividends. Shareholders receive a K-1 at the end of the year and its 5% distribution yield, while nice, presents a more challenging tax treatment for shareholders.
The company is expected to earn 15 cents per share this year, and increase nicely to 44 cents per share next year. It lost money in the quarter ending in March of 2013, which came in below analyst forecasts. This has caused the full-year estimate and next year's estimate to be decreased.
Based on its most recent 10-Q, revenue decreased by $212 million in March of 2013 compared to March of 2012. It contributed its former retail business to Suburban Propane Partners, however, and in the year-ago period these sales amounted to $321 million. This shows us that the revenue for the quarter ending in March of 2013 was actually pretty good. Marketing, supply, and logistics revenue increased by a strong 31.5% in the first quarter of 2013 compared to the year ago period.
With a market capitalization of $2.97 billion, its 66% ownership stake in Inergy Midstream amounts to a current value (based on market price) of about $1.27 billion. This is an exciting fact as a potential spin-off of this stake to shareholders could unlock more value.
I like Rangold and Inergy here based on this analysis. At the current time, I would consider adding these to a mid-cap portfolio.
Rangold offers a potential investor the chance to cash in on rising gold prices if those resume, in addition to offering exposure to emerging markets. I believe emerging markets will have strong years over the long term in general, and this is a quality stock based on its solid earnings.
Inergy has good revenue growth in its existing segments in addition to having a large equity interest in the other company. I like the opportunity it presents investors here and a 5% distribution yield at current levels sure doesn't hurt either.
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Anthony Parsons has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!