3 Mid-Cap Stocks That Concern Us

Many investors pay attention to mid-cap stocks because they have established business models and expansive market opportunities. However, their paths to becoming $100 billion corporations are ripe with competition, ranging from giants with vast resources to agile upstarts eager to disrupt the status quo.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three mid-cap stocks to avoid and some other investments you should consider instead.

Watsco (WSO)

Market Cap: $15.43 billion

Originally a manufacturing company, Watsco (NYSE:WSO) today only distributes air conditioning, heating, and refrigeration equipment, as well as related parts and supplies.

Why Do We Think Twice About WSO?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. Earnings per share fell by 3.7% annually over the last two years while its revenue was flat, partly because it diluted shareholders
3. Eroding returns on capital suggest its historical profit centers are aging

Watsco’s stock price of $407.58 implies a valuation ratio of 32.8x forward P/E. Dive into our free research report to see why there are better opportunities than WSO.

Illumina (ILMN)

Market Cap: $25.15 billion

Pioneering the ability to read the human genome at unprecedented speed and affordability, Illumina (NASDAQ:ILMN) develops and sells advanced DNA sequencing and microarray technologies that allow researchers and clinicians to analyze genetic variations and functions.

Why Does ILMN Give Us Pause?

1. Sales were flat over the last two years, indicating it’s failed to expand this cycle
2. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
3. Underwhelming 0.7% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $184.60 per share, Illumina trades at 32.7x forward P/E. Read our free research report to see why you should think twice about including ILMN in your portfolio.

First Horizon (FHN)

Market Cap: $11.86 billion

Tracing its roots back to 1864 during the Civil War era, First Horizon (NYSE:FHN) is a Tennessee-based bank holding company that provides commercial and consumer banking, wealth management, and specialty financial services across multiple states.

Why Does FHN Fall Short?

1. 7.3% annual net interest income growth over the last five years was slower than its banking peers
2. Earnings per share lagged its peers over the last five years as they only grew by 5.7% annually
3. Estimated tangible book value per share growth of 5.3% for the next 12 months implies profitability will slow from its two-year trend

First Horizon is trading at $26 per share, or 1.4x forward P/B. To fully understand why you should be careful with FHN, check out our full research report (it’s free).

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