Merry Merry Merry Mid-Caps
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many mid-cap stocks have a right to be merry this season and this is in no small part due to having the best CEO's. Some of the best are Cabela's (NYSE: CAB), Stratasys (NASDAQ: SSYS), Tesoro (NYSE: TSO) , and ACI Worldwide (NASDAQ: ACIW) as determined by Chiefist.com based on performance metrics like return on equity, margins, book value, and EPS improvement. It's a valuable service as demonstrated by several of its best small cap CEOs as listed last summer are now mid-cap CEOs thanks to share price appreciation. One name on the mid-cap CEO list was Robbins & Myers which agreed to be acquired by National Oil Well Varco for a significant premium since the list came out.
Not every mid cap on the list is going to get a buyout bid but superior stock performance is not out of the question. The following demonstrate the best of mid caps from four different sectors: retail, tech, energy, and banking.
CEO Santas Giving Profits
Cabela's, the outdoor equipment retailer, is one of my favorite retail stocks because no matter how much bricks and mortar stores suffer at the hands of e-tailers, Cabela's will remain a "destination" store where customers enjoy an experience and learn at the outdoor equipment retailer. As a greeter shouted to me when I took a photo at the entrance,"You'll never get a picture of this place empty."
Cabela's CEO Thomas Millner has helped take the share price up 90.28% over the last year while still keeping all governance risks low. The P/E is at 18.14 with a forward P/E of 14.48. Analysts still predict Cabela's growth rate over the next five years to be 16.75% per annum.
Caveats are the short interest has doubled since the last earnings release in which they slightly disappointed and debt is an issue at ten times total cash as they expand the number of stores in the US and Canada from its current total of 40. Free cash flow has also declined since July to late 2011 levels.
Stratasys is at the forefront of the 3-D printing revolution which allows consumers and industry to create three dimensional prototypes with an additive printing technique. The 3-D printing stocks' prices have multiplied in the last few years and Stratasys is up 148% over the last year. It recently merged with Objet of Israel and CEO Scott Crump will now become Chairman of the Board. This merger is expected to create over $7 million in cost savings and $3 million in tax savings.
Stratasys trades at a stratospheric P/E of 82.99 with a forward P/E of 38.09 but the company has more than 500 patents and patents pending for 3-D printing. Most recent analyst action was an initiation by BB&T Capital Markets to buy but there are detractors since the 3D printer space is so fluid as Fool Brian Stoffel notes. He still likes it for a Tier Two growth portfolio.
Undervalued and Hoarding Cash
Tesoro is the oil refiner and marketer whose CEO Gregory Goff was named best mid-cap CEO. Tesoro is off less than 10% from its 52 week high, up 83% for the year. At the December 12 analyst and investor day CEO Goff led off saying he still believes the stock and the company are undervalued. It trades at a 9.88 P/E and has a 1.50% yield at a very sustainable 3.00% payout ratio.
Goff said with the free cash they've been generating they've paid off $625 million of debt, bought some Chevron pipe line and BP Carson City assets and plan to maintain a cash horde of $600-750 million. Analysts at Credit Suisse and Morgan Stanley liked what Goff had to say and upgraded the name the next day.
Last of these mid cap CEO's is Philip Heasley of ACI Worldwide, a service and software designer and provider of electronic banking systems worldwide. The company has strategic collaborations with big cap names like IBM, Oracle, and Hewlett Packard. It's up just shy of 50% over the last year, not bad for a banking payment company.
However, it has a 68.57 P/E and its profit margin is only 4.00%. The company also has debt at over four times total cash and analysts expect decelerating sales growth going forward. Also Fool Seth Jayson points out that revenue growth, while robust at 38.30% was far outpaced by accounts receivable growth at over 120%.
At the last earnings release on November 9 shares surged 17% after that 38% revenue growth number and upbeat guidance despite disappointing by two cents on earnings. The company also has big competition from Fiserv with a 10.67 billion market cap and only a 19.41 P/E.
The Merriest And Brightest Futures
For 2013 Stratasys and Tesoro would be my favored picks, especially Tesoro if oil prices start picking up. Stratasys is really the first mover in 3-D printing and the market should like its merger with Objet although many will miss Scott Crump as CEO. Cabela's has been a great name this year and my only fear would be that wintertime isn't exactly the best time for outdoor equipment sales. Lastly, ACI Worldwide while in a growing industry and a rising star, one has to hope they won't be eclipsed by rival Fiserv.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Stratasys. Motley Fool newsletter services recommend Stratasys. 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!