Philip van Doorn

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Dec. 12, 2019, 10:41 p.m. EST

Top stock picks for 2020: Making money with midsize firms

The mid-cap index has outperformed small- and large-cap indexes in the long run

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By Philip van Doorn, MarketWatch


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Among sell-side analysts polled by FactSet, 13 of 15 rate World Wrestling Entertainment’s stock a “buy.”

(This is the second in a three-part series listing highly rated stocks that sell-side analysts expect to rise the most over the next 12 months. <CROSSREF GUID="{4FF7972E-1B55-11EA-B04C-1B10A314783E}" DOCTYPEID="" FILE-NAME="" ENCODING-DATE="">Part 1</CROSSREF> covers large-cap stocks and <CROSSREF GUID="{431EEC58-1C1A-11EA-A37B-63BB81D511AD}" DOCTYPEID="" FILE-NAME="" ENCODING-DATE="">Part 3</CROSSREF> covers small-caps.)

This has been an excellent year for U.S. stocks across the board. That said, investors who wish to be truly diversified need to look beyond the large-cap companies that dominate financial headlines.

The S&P 400 Mid Cap Index /zigman2/quotes/210599897/delayed MID +3.86% has returned 23% this year, with dividends reinvested, through Dec. 9. That trails the 27.5% of the large-cap S&P 500 /zigman2/quotes/210599714/realtime SPX +1.99% but is ahead of the 20% return for the S&P Small Cap 600 Index /zigman2/quotes/210599868/delayed SML +4.08%

Here are a few longer-term performance comparisons for the three indexes, underlining the importance of diversification.

Over the past five years, the S&P 500 has been the best performer among the three:


FactSet

Going back 10 years, the small-caps take the prize:

But if we go back 15 years — including the boom-and-bust cycle leading through the 2008 financial crisis — the mid-cap index is the best performer of the three:

If you are a typical index-fund investor, you might have a lot of your retirement nest egg in a low-cost S&P 500 Index fund, such as the Vanguard 500 Index fund /zigman2/quotes/201363336/realtime VFIAX +3.43%  or the SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY +2.09% . But the large-cap index may not be as diversified as you think. The largest five companies in the S&P 500 — Apple /zigman2/quotes/202934861/composite AAPL +0.20% , Microsoft /zigman2/quotes/207732364/composite MSFT -0.35% , Alphabet /zigman2/quotes/205453964/composite GOOG -0.24% /zigman2/quotes/202490156/composite GOOGL -0.45% , Amazon /zigman2/quotes/210331248/composite AMZN -0.55%  and Facebook /zigman2/quotes/205064656/composite FB -0.76%  — make up 18% of the S&P 500’s market capitalization, while the largest 10 make up 26%.

So you can be more diversified by expanding your index horizons. The Vanguard S&P Mid-Cap 400 ETF /zigman2/quotes/202479085/composite IVOO +4.35%  is one way of doing so.

Analysts’ favorite stocks among the S&P 400

Here are the 20 S&P 400 Mid Cap stocks covered by at least five sell-side analysts with 75% or more “buy” or equivalent ratings that have the highest 12-month upside potential implied by consensus price targets:

Company Ticker Share 'buy' ratings Share neutral ratings Share 'sell' ratings Closing price - Dec. 9 Consensus price target Implied 12-month upside potential Total return - 2019 through Dec. 9
Ligand Pharmaceuticals Inc. /zigman2/quotes/202030140/composite LGND 100% 0% 0% $105.79 $196.20 85% -22%
InterDigital Inc. /zigman2/quotes/200883544/composite IDCC 100% 0% 0% $53.13 $92.60 74% -18%
Etsy Inc. /zigman2/quotes/202790087/composite ETSY 88% 6% 6% $41.16 $66.07 61% -13%
Matador Resources Co. /zigman2/quotes/204387276/composite MTDR 75% 25% 0% $14.93 $22.15 48% -4%
SLM Corp. /zigman2/quotes/205828282/composite SLM 92% 8% 0% $8.67 $12.33 42% 6%
WPX Energy Inc. /zigman2/quotes/204372171/composite WPX 91% 9% 0% $10.59 $15.01 42% -7%
Ciena Corp. /zigman2/quotes/208745450/composite CIEN 76% 19% 5% $34.61 $48.95 41% 2%
II-VI Inc. /zigman2/quotes/202572630/composite IIVI 75% 25% 0% $29.50 $40.50 37% -9%
Aaron's Inc. /zigman2/quotes/203979417/composite AAN 90% 10% 0% $58.65 $79.50 36% 40%
Dycom Industries Inc. /zigman2/quotes/205114296/composite DY 78% 22% 0% $46.38 $60.50 30% -14%
World Wrestling Entertainment Inc. Class A /zigman2/quotes/207109722/composite WWE 87% 13% 0% $62.69 $80.50 28% -16%
Adtalem Global Education Inc. /zigman2/quotes/204213285/composite ATGE 80% 20% 0% $33.46 $42.80 28% -29%
MasTec Inc. /zigman2/quotes/207965492/composite MTZ 85% 15% 0% $62.02 $77.08 24% 53%
Ollie's Bargain Outlet Holdings Inc. /zigman2/quotes/208674659/composite OLLI 77% 23% 0% $60.23 $73.38 22% -9%
Boyd Gaming Corp. /zigman2/quotes/206215159/composite BYD 93% 7% 0% $29.00 $35.00 21% 41%
LiveRamp Holdings Inc. /zigman2/quotes/200307325/composite RAMP 80% 10% 10% $49.36 $59.56 21% 28%
Sterling Bancorp /zigman2/quotes/206493117/composite STL 91% 9% 0% $20.51 $24.73 21% 26%
Penumbra Inc. /zigman2/quotes/203831055/composite PEN 100% 0% 0% $161.13 $193.40 20% 32%
SolarEdge Technologies Inc. /zigman2/quotes/207754270/composite SEDG 75% 25% 0% $82.84 $98.67 19% 136%
Catalent Inc. /zigman2/quotes/206700489/composite CTLT 100% 0% 0% $52.06 $61.88 19% 67%
Source: FactSet

You can click on the tickers for more information about each company.

It is interesting to see that half of these stocks are down this year, while 12 have underperformed the S&P 400 Mid Cap Index. Mark Hulbert explained that the worst stocks in a given year tend to rebound the following year.

Don’t miss: These are the 20 best-performing stocks of the past decade, and some of them will surprise you

<STRONG>Create an email alert for Philip van Doorn’s Deep Dive columns <INTERNAL-PAGE URL="/tools/alerts/newsColumn.asp">here</INTERNAL-PAGE>.</STRONG>

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US : S&P US
1,594.78
+59.27 +3.86%
Volume: 176.15M
April 9, 2020 10:29a
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2,804.64
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US : S&P US
735.92
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/zigman2/quotes/201363336/realtime
US : U.S.: Nasdaq
$ 253.97
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/zigman2/quotes/209901640/composite
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$ 279.77
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April 9, 2020 10:39a
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 266.59
+0.52 +0.20%
Volume: 11.29M
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20.97
Dividend Yield
1.16%
Market Cap
$1164.18 billion
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/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 164.56
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P/E Ratio
28.51
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1.25%
Market Cap
$1255.99 billion
Rev. per Employee
$902,473
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/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,207.41
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P/E Ratio
24.35
Dividend Yield
N/A
Market Cap
$769.02 billion
Rev. per Employee
$1.39M
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/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,201.62
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P/E Ratio
24.26
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N/A
Market Cap
$769.02 billion
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 2,031.83
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P/E Ratio
87.66
Dividend Yield
N/A
Market Cap
$1017.12 billion
Rev. per Employee
$359,671
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 172.96
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April 9, 2020 10:39a
P/E Ratio
26.70
Dividend Yield
N/A
Market Cap
$496.78 billion
Rev. per Employee
$1.57M
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/zigman2/quotes/202479085/composite
US : U.S.: NYSE Arca
$ 108.20
+4.52 +4.35%
Volume: 10,350
April 9, 2020 10:38a
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/zigman2/quotes/202030140/composite
US : U.S.: Nasdaq
$ 84.85
+1.84 +2.22%
Volume: 51,610
April 9, 2020 10:38a
P/E Ratio
2.86
Dividend Yield
N/A
Market Cap
$1.37 billion
Rev. per Employee
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/zigman2/quotes/200883544/composite
US : U.S.: Nasdaq
$ 47.16
+1.65 +3.63%
Volume: 27,293
April 9, 2020 10:38a
P/E Ratio
68.73
Dividend Yield
3.04%
Market Cap
$1.40 billion
Rev. per Employee
$788,215
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/zigman2/quotes/202790087/composite
US : U.S.: Nasdaq
$ 52.79
+1.79 +3.51%
Volume: 751,249
April 9, 2020 10:39a
P/E Ratio
69.28
Dividend Yield
N/A
Market Cap
$6.02 billion
Rev. per Employee
$690,724
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/zigman2/quotes/204387276/composite
US : U.S.: NYSE
$ 4.08
+0.89 +27.90%
Volume: 3.03M
April 9, 2020 10:39a
P/E Ratio
5.06
Dividend Yield
N/A
Market Cap
$371.86 million
Rev. per Employee
$3.15M
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/zigman2/quotes/205828282/composite
US : U.S.: Nasdaq
$ 7.30
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April 9, 2020 10:39a
P/E Ratio
5.59
Dividend Yield
1.65%
Market Cap
$2.97 billion
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$1.11M
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US : U.S.: NYSE
$ 4.85
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7.63
Dividend Yield
N/A
Market Cap
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/zigman2/quotes/208745450/composite
US : U.S.: NYSE
$ 45.95
-0.21 -0.47%
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April 9, 2020 10:39a
P/E Ratio
25.16
Dividend Yield
N/A
Market Cap
$7.09 billion
Rev. per Employee
$536,617
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/zigman2/quotes/202572630/composite
US : U.S.: Nasdaq
$ 29.37
+0.75 +2.62%
Volume: 270,111
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P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.61 billion
Rev. per Employee
$111,255
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/zigman2/quotes/203979417/composite
US : U.S.: NYSE
$ 26.00
+2.33 +9.84%
Volume: 111,019
April 9, 2020 10:38a
P/E Ratio
61.36
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0.63%
Market Cap
$1.58 billion
Rev. per Employee
$324,485
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US : U.S.: NYSE
$ 30.08
+1.07 +3.67%
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April 9, 2020 10:38a
P/E Ratio
16.48
Dividend Yield
N/A
Market Cap
$916.28 million
Rev. per Employee
$209,631
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/zigman2/quotes/207109722/composite
US : U.S.: NYSE
$ 36.95
+0.68 +1.87%
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April 9, 2020 10:39a
P/E Ratio
43.17
Dividend Yield
1.30%
Market Cap
$2.80 billion
Rev. per Employee
$1.02M
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/zigman2/quotes/204213285/composite
US : U.S.: NYSE
$ 26.58
+0.36 +1.37%
Volume: 47,932
April 9, 2020 10:37a
P/E Ratio
14.01
Dividend Yield
N/A
Market Cap
$1.39 billion
Rev. per Employee
$102,514
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/zigman2/quotes/207965492/composite
US : U.S.: NYSE
$ 40.48
+2.81 +7.46%
Volume: 221,264
April 9, 2020 10:39a
P/E Ratio
7.66
Dividend Yield
N/A
Market Cap
$2.83 billion
Rev. per Employee
$363,654
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/zigman2/quotes/208674659/composite
US : U.S.: Nasdaq
$ 55.70
+2.45 +4.60%
Volume: 224,538
April 9, 2020 10:39a
P/E Ratio
25.75
Dividend Yield
N/A
Market Cap
$3.39 billion
Rev. per Employee
$179,718
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/zigman2/quotes/206215159/composite
US : U.S.: NYSE
$ 16.50
+0.92 +5.91%
Volume: 699,857
April 9, 2020 10:39a
P/E Ratio
11.52
Dividend Yield
0.00%
Market Cap
$1.74 billion
Rev. per Employee
$111,885
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/zigman2/quotes/200307325/composite
US : U.S.: NYSE
$ 33.01
+1.01 +3.14%
Volume: 62,281
April 9, 2020 10:38a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.16 billion
Rev. per Employee
$182,418
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/zigman2/quotes/206493117/composite
US : U.S.: NYSE
$ 11.61
+0.56 +5.07%
Volume: 358,592
April 9, 2020 10:39a
P/E Ratio
5.64
Dividend Yield
2.43%
Market Cap
$2.19 billion
Rev. per Employee
$682,589
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/zigman2/quotes/203831055/composite
US : U.S.: NYSE
$ 160.99
+0.07 +0.04%
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P/E Ratio
120.83
Dividend Yield
N/A
Market Cap
$5.64 billion
Rev. per Employee
$202,245
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/zigman2/quotes/207754270/composite
US : U.S.: Nasdaq
$ 99.20
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April 9, 2020 10:38a
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33.67
Dividend Yield
N/A
Market Cap
$4.62 billion
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$539,572
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/zigman2/quotes/206700489/composite
US : U.S.: NYSE
$ 56.56
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Volume: 323,448
April 9, 2020 10:39a
P/E Ratio
66.73
Dividend Yield
N/A
Market Cap
$8.60 billion
Rev. per Employee
$232,523
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Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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