Mid Cap stocks are those with a market capitalisation between $2 billion and $10 billion. These are mostly growth stocks across all sectors. S&P’s ASX mid cap index contains stocks from a range of industries. These mid cap stocks have a mean market cap of $6.4 billion and a median market cap of $5.5 billion.
One of the advantages of mid cap stocks is that they are usually in the growth phase and hence are usually bid to provide a higher return than large cap stocks. They fit well into long term strategies and have a higher probability of beating the benchmark index.
The disadvantage is that they usually possess a higher degree of operating risk than large cap stocks. Dividends are also a rarity when it comes to mid cap stocks when compared to large caps – this again, is due to the firm being in their growth phase and thus reinvesting most of their earnings.
ASX is home to quite a few mid cap stocks that are underpinned by excellent fundamentals. Most of these mid cap stocks have also performed better than the large caps during the recovery from the pandemic. These themes are expected to continue across a few sectors. The top 5 asx stocks to look out for in 2021 also contain a few mid cap stocks.
Appen is an extremely critical player in the Artificial Intelligence industry. They essentially provide the raw material for the entire process to work – data sets. Appen categorises and sells this much needed training data to the top tech firms of the world and also to the up-and-coming bleeding edge technology start-ups. Appen is also arguably the biggest global player in this space.
Appen has hit roadblocks in the past few months due to the pandemic, however, their growth story is not over. With tech shares slumping due to high bond yields and momentum taking Appen shares lower, they now trade at a P/E of 44x – the lowest among the WAAAX stocks trading on the ASX. Strong finances, sound fundamentals, and optimistic future lay ahead for Appen and this is hence an opportunity to add a top-quality stock to your portfolio when it is undervalued by the market.
United Malt Group demerged from GrainCorp in March 2020 at a time when the world went into lockdown and craft beer sales were at its lowest point. But as the pandemic weakens and there is wide scale reopening of bars and pubs, the decimated on-premises sales should come back roaring. UMG is the 4th largest maltster in the world with an extremely sticky customer base and lots of pricing power – two qualities crucial for sustainable dominance.
The CEO and Chairman share the same sentiment as they topped off their portfolios at a price of $4 a share in a market purchase. US led recovery is crucial and it looks to be going well as vaccinations are underway globally. Currently trading at $3.55, UMG presents a massively undervalued opportunity that is expected to outperform in the latter part of 2021 and beyond. Timing the markets are often tricky, but UMG right now looks like the perfect time to get in on.
Kogan in an online retailer or e-commerce platform in Australia. While the lockdowns persisted, the switch to e-commerce has fast-tracked in Australia. Kogan offers various brands on its website across a wide array of categories such as electronics, toys, homewares, etc. They also own and operate 20 private label brands. The firm has also entered into markets such as pre-paid mobile phone plans, travel booking, insurance, NBN, etc.
They are thus becoming into a mini-Amazon and we all know how that story has unfolded. While Kogan has had a very positive result for the half year FY2021, the share price has taken a beating with a lot of bears adding pressure to the stock. Fundamentally, Kogan remains a top quality company to buy and hold for the long-term.
Redbubble is an online marketplace where artists can sell their work – anywhere from paintings to mugs to apparel printed with their art. It is a fairly large marketplace now and the firm has had tailwinds driven by consumers starting to buy into online shopping during the pandemic. With spending high during the holiday season, expectations were extremely high for Redbubble’s half-year earnings.
Their sales volumes not just met those expectations, but they exceeded them by so much that fulfillment of orders became a temporary problem as the supply chain continued to be disrupted in major markets such as the USA and Europe. The resulted in the stock shedding some of the gains it has made and providing long-term investors to gain an entry into the stock.
Lynas Rare Earths Limited (ASX: LYC) is the second largest, rare earths producer in the world. Outside of China, Lynas is the only producer of scale of these rare earth commodities. Mt Weld, Western Australia is home to one of the world’s highest-grade rare-earth mines. The concentrate produced here is then shipped to Malaysia where Lynas operates the world’s largest and most advanced rare earths chemical processing plant in the world.
Rare Earths are used in the manufacture of many things we use every day – from smart phones to cars, electrical appliances, medical equipment, and importantly, hybrid and electric vehicles. Approximately 1 kilo of rare earth metals goes into every single electric car that is manufactured. It is an expanding market that is projected to grow at over 10% CAGR. The market has started to realise the potential that rare earths and Lynas has and its expansion is imminent – making Lynas a top quality ASX mid cap stock to buy and hold.
Growth stocks are potentially one of the hardest to pick as there are a lot of factors that need to be considered – from industry tailwinds to the financial health of the individual stocks and a lot of little things in between them. Shares in the Value research team have picked their top 3 ASX stocks to buy in 2021. Click here to download the report for free.