In this article, we will take a look at the most promising mid-cap stocks according to hedge funds.
The S&P 500 May Hit 6,000 in 2024
September closed on a high note, opening a wealth of opportunities for investors. On October 1, Jay Woods, Freedom Capital Markets Chief Global Strategist, appeared in an interview on Yahoo Finance to discuss his predictions for the market.
Woods shares his anticipation for the elections and that the market will take its due course once the elections are over. He believes the technology sector is poised to strengthen as the market rotates from sector to sector. Nvidia, Apple, and Microsoft are currently 15%, 5%, and 8% off their highs and a strong tailwind may be in store for us.
September was stronger than expected and 19 out of 21 times the market hit a high during the month in the past, the market has gone way higher in the following months, or the fourth quarter. Woods reiterated that the setup for a strong comeback is there, especially with elections, and that rotational trade will continue.
Speaking of employment data, Woods suggests that the market has particularly been overreacting to data points and that anything jittery will adversely impact investor confidence. He predicts the unemployment rate to sit at 4.2% and hints that a percentage higher than this will lead to more discussions on bigger rate cuts. He advises that investors need to start blocking out some of these headlines and focus on how stocks have performed in the third quarter of 2024.
The Job Market is Extremely Crucial
On September 30, Matt Stucky, Northwestern Mutual Wealth Management’s chief portfolio manager for equities, appeared in an interview on Yahoo Finance to discuss his market thesis.
According to Stucky, the job market is extremely crucial and investors must focus on that. Since the beginning of 2024, employment data has been consistently declining to the point it may hint at a weakening economy.
On the flip side, the third quarter stood out. The third quarter of 2024 saw the market broaden to sectors other than tech. Five out of seven sectors on the S&P 500 experienced tremendous earnings growth, compared to only two in the second quarter of the same year.
As the market broadens, he expects the market to post earnings growth between 9% to 10% this year and 14% to 15% for the next year. Stucky’s expectations are rather optimistic and believes the economy will head to a soft landing. He also expects the average investor to be more inclined to stocks that have consistent high margin growth in 2025 and ahead. For this year, however, Stucky believes that the defensive sector, especially utilities, remained the strongest.
While the financial markets may remain uncertain, investors may look for cheaper and less-risky investments. That said, let’s look at some of the most promising mid-cap stocks according to hedge funds.
A financial analyst looking at a monitor displaying the stocks of the public company.
Our Methodology
To find the most promising mid-cap stocks according to hedge funds, we used the Finviz stock screener. We set the market capitalization filter to range between $2 billion and $10 billion. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted in ascending order of the number of hedge fund holders as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Most Promising Mid-Cap Stocks According to Hedge Funds
10. Carpenter Technology Corporation (NYSE:CRS)
Number of Hedge Fund Holders: 50
Market Capitalization as of October 10, 2024: $8.13 Billion
Carpenter Technology Corporation (NYSE:CRS) is a steel company that ranks 10th on our list of the most promising mid-cap stocks according to hedge funds. The company provides steel products in several industries including defense, medical, energy, industrial, transportation, and aerospace. The company offers and sells steel parts and components, distribution solutions, value-added services, and quality assurance and control services.
During the fiscal fourth quarter of 2024, Carpenter Technology Corporation (NYSE:CRS) increased net sales by 15% sequentially, driven by the growing demand from defense, aerospace, and medical end-use markets. In addition to that, the company generated $125.2 million in operating income, up by 39% sequentially. For the fiscal full year 2025, the company expects operating income to range between $460 million to $500 million. Carpenter Technology Corporation (NYSE:CRS) believes its broad portfolio and productivity gains promise strong financial results in fiscal year 2025.
Carpenter Technology Corporation (NYSE:CRS) is a buy and we say that because of its presence in high-growth markets. These markets have strong fundamentals and have a growing demand environment. In addition to that, the company owns a diverse range of unique assets that are quite challenging to replicate, distinguishing it from its competitors. Overall, CRS has strong fundamentals and 50 hedge funds were bullish on the stock at the close of Q2 2024.
Invesco Discovery Fund stated the following regarding Carpenter Technology Corporation (NYSE:CRS) in its Q2 2024 investor letter:
“Carpenter Technology Corporation (NYSE:CRS) manufactures, fabricates and distributes stainless steels, titanium and specialty metal alloys. Management accelerated its guidance for long-term fiscal 2027 EPS (earnings per share) by a full year. Management also reported quarterly earnings that beat analysts’ expectations and raised guidance for fiscal year 2024.”
9. WESCO International, Inc. (NYSE:WCC)
Number of Hedge Fund Holders: 51
Market Capitalization as of October 10, 2024: $8.19 Billion
WESCO International, Inc. (NYSE:WCC) is a maintenance, repair, and operations company headquartered in Pennsylvania, United States. The company provides automotive, communications, electrical, safety, power generation, energy management, and renewables solutions.
The company is present in more than 50 countries and has over 1.5 million products that serve 150,000 plus customers. In an attempt to expand its footprint, the company forged multiple alliances during the past quarter. During Q2 2024, WESCO International, Inc. (NYSE:WCC) signed an agreement to acquire entroCIM, a data center and building intelligence software company. During the same quarter, WESCO also agreed to acquire Storeroom Logix, an asset and inventory management software company.
WESCO International, Inc. (NYSE:WCC) experienced significant growth in its data center segment in Q2, primarily driven by the growing demand for artificial intelligence and generative artificial intelligence. While other segments were slower, the company has a healthy backlog, growing at an impressive rate sequentially.
Amid global economic conditions, WESCO International, Inc. (NYSE:WCC) expects the year to be slower, reducing its full-year outlook. Despite such, the company’s expanded portfolio is expected to post sequential growth.
Diamond Hill Mid Cap Strategy stated the following regarding WESCO International, Inc. (NYSE:WCC) in its Q2 2024 investor letter:
“Other bottom contributors included Parker-Hannifin, WESCO International, Inc. (NYSE:WCC) and Regal Rexnord. Shares of leading industrial distributor WESCO (WCC) and electric motors and power transmission components manufacturer Regal Rexnord (RRX) were pressured against a backdrop of macroeconomic concerns which are seemingly making investors hesitant to own leveraged cyclical companies like WCC and RRX. However, we believe WCC remains well-positioned to capitalize on several secular tailwinds and to leverage its significant scale advantage to take market share and improve margins.”
8. Intra-Cellular Therapies, Inc. (NASDAQ:ITCI)
Number of Hedge Fund Holders: 52
Market Capitalization as of October 10, 2024: $7.74 Billion
Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) ranks eighth on our list of the most promising mid-cap stocks to buy according to hedge funds. The biopharmaceutical company provides innovative treatments that improve the living conditions of individuals with neurological disorders.
The company has several treatments in its pipeline, some in phase 3 trials, while others remain under study in phase 1. Its major depressive disorder therapy treatment is currently in phase 3, meaning, the company will soon seek approval from the FDA. In June, Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) announced that the treatment retrieved positive topline results in phase 3 trials.
Overall, the company is consistently improving its financial position. In the second quarter of 2024, Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) logged $161.4 million in sales, up from $110.8 million in the same quarter in 2023. CAPLYTA, its prescription medicine for patients with bipolar depression, is its major product, bringing in net product sales worth $161.3 million during Q2 2024.
CAPLYTA is the company’s star product. It reported an increase in prescriptions by 36% during Q2 2024. Keeping such performance in mind, Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) increased its full fiscal year 2024 guidance for CAPLYTA to $680 million. Overall, the company’s drugs in the pipeline are expected to show similar results, establishing the company as a leading drug maker for the foreseeable future.
7. Caesars Entertainment, Inc. (NASDAQ:CZR)
Number of Hedge Fund Holders: 54
Market Capitalization as of October 10, 2024: $9.61 Billion
Caesars Entertainment, Inc. (NASDAQ:CZR) is a prominent entertainment and gambling company headquartered in Nevada, United States. Formerly known as Eldorado Resorts, the company now has over 50 casinos in the world and is known as one of the largest gaming companies in the United States. Some of its popular gaming brands include Harrah’s, Horseshoe, Eldorado, Silver Legacy, Circus Circus Reno, and Tropicana.
The company is in the works to open Nobu Hotels Caesers in New Orleans in the coming months. Once opened, the gaming revenue is projected to increase by $80 million. In addition to that, Caesars Entertainment, Inc. (NASDAQ:CZR) also plans to open another property in Virginia by the end of 2024.
A few days ago, Caesars Entertainment, Inc. (NASDAQ:CZR) announced the launch of its Horseshoe Online Casino, an online casino application and desktop platform for seasoned casino players. The Horseshoe brand has been offering unparalleled gaming experiences to players since 1951. The application will ensure the brand’s legacy is alive and that it celebrates established casino players.
Despite challenges in digital sports, betting practices, and regulatory bodies, Caesars Entertainment, Inc. (NASDAQ:CZR) has been showing consistent performance. It has not only been working to reduce its debt burden, but it is also striving to improve its fundamentals and enhance its position in technology.
6. Chord Energy Corporation (NASDAQ:CHRD)
Number of Hedge Fund Holders: 56
Market Capitalization as of October 10, 2024: $8.25 Billion
Chord Energy Corporation (NASDAQ:CHRD) ranks sixth on our list of the most promising mid-cap stocks according to hedge funds. The hydrocarbon exploration and hydraulic fracturing company is headquartered in Texas, United States. The company has an immense focus on acquiring and developing oil and natural gas properties.
In the second quarter of 2024, the company generated revenue worth $1.26 billion, up by 38.22% year-over-year. Strong financial results were primarily driven by solid well performance and declining downtime. According to the company’s CEO, efficient production levels and strategic cost control improved free cash flow levels, exceeding overall expectations. In addition to that, the company closed its deal with Enerplus, promising greater scale, low-cost inventories, financial strength, and better shareholder returns. The deal will add more than $200 million in annual synergies, up from the original target of $150 million.
Following the combination with Enerplus, Chord Energy Corporation (NASDAQ:CHRD) revised its guidance for the complete fiscal year 2024. Now, the company expects to generate $1.2 billion of adjusted free cash flow, with a re-investment rate of 55%. In addition to that, adjusted EBITDA is expected to reach $2.9 billion.
Overall, Chord Energy Corporation (NASDAQ:CHRD) has strong fundamentals and an attractive position in the industry. The company has a history of dominating the market by engaging in strategic acquisitions. Lastly, CHRD expects to continue investing in capital investments and increase production, positioning the company for long-term sustainable growth.
Madison Investments’ Madison Small Cap Fund stated the following regarding Chord Energy Corporation (NASDAQ:CHRD) in its first quarter 2024 investor letter:
“Our Energy underweight was also a slight drag, although we are optimistic about our singular investment in this sector with Chord Energy Corporation (NASDAQ:CHRD). During Q1 the company announced a strategic combination with Canadian-based Enerplus Corporation (TSX: ERF). Enerplus is one of, if not the best remaining assets in the Bakken and we are very constructive on the financial and strategic merits of this transformational deal. CHRD will become the largest operator in the Bakken, representing about 12% of the basin’s production. With a solid balance sheet post deal, CHRD will now be in the enviable position of either the basin’s main consolidator or most strategic asset as a target for larger E&P companies.”
5. Tempur Sealy International, Inc. (NYSE:TPX)
Number of Hedge Fund Holders: 56
Market Capitalization as of October 10, 2024: $8.95 Billion
Tempur Sealy International, Inc. (NYSE:TPX) is a mattress manufacturing company headquartered in Kentucky, United States. The bedding provider designs, develops, and manufactures mattresses, adjustable bases, pillows, and other relaxation products. Some of its prominent brands include Tempur, Tempur-Pedic, Cocoon by Sealy, and Stearns & Foster.
The company is committed to delivering solutions to people from across the globe, positioning itself as one of the world leaders in comfort and relaxation. In the second quarter of 2024, the company logged $1.23 billion in sales, down by 2.8% from Q2 2023. While the North American business segment declined, the international business segment saw consistent performance. Despite a slight decline in sales, the company had a gross margin of 44.9%, up from 42.7% in Q2 2023.
In the second quarter, Tempur Sealy International, Inc. (NYSE:TPX) shared its plans to acquire Mattress Firm Group. The acquisition is expected to close in the coming months after important hearings in November. The proposed acquisition with Mattress Firm led to an agreement with Mattress Warehouse for the sale of 73 Mattress Firm retail locations and the company’s Sleep Outfitters subsidiary, which has 103 specialty mattress retail locations and seven distribution centers. Once the deal is closed, Tempur Sealy International, Inc. (NYSE:TPX) will have over 2,800 functional retail locations across the globe and sales from the North American region will come primarily from Mattress Firm. Following the transaction, the company is expected to realize annual run-rate synergies of $100 million by the end of year four.
Overall, the transaction seems to be the missing piece for Tempur Sealy International, Inc. (NYSE:TPX). A decline in sales from the North American region may be offset if the transaction comes through, establishing TPX as a global leader in mattresses and bedding solutions.
The London Company stated the following regarding Tempur Sealy International, Inc. (NYSE:TPX) in its Q2 2024 investor letter:
“Tempur Sealy International, Inc. (NYSE:TPX) – TPX is the leader in the mattress industry. Mattress volume has stabilized in recent months. Stable volume along with pricing gains have led to higher revenue for TPX. In 2023, the company announced plans to acquire Mattress Firm, which has the potential to be materially accretive and strengthen the company’s overall competitive position. Valuation remains attractive, and TPX’s robust free cash flow generation, strong brand equity, and solid management execution support our investment thesis. We have owned the stock for many years in our Small Cap portfolio.”
4. KBR, Inc. (NYSE:KBR)
Number of Hedge Fund Holders: 56
Market Capitalization as of October 10, 2024: $9.08 Billion
KBR, Inc. (NYSE:KBR) ranks fourth on our list of the most promising stocks to buy according to hedge funds. The engineering company operates in the science and technology departments to solve today’s critical challenges such as energy transition, national security, cybersecurity, climate change, and space exploration. KBR, Inc. (NYSE:KBR) has two primary businesses, government solutions and sustainable technology solutions.
The company is committed to delivering sustainable and net-zero solutions to its customers. Its sustainable technology solutions segment operates through two divisions: sustainable services, which include consulting and integrated solutions, and sustainable technology, which includes petrochemicals, clean fuel technologies, modular solutions, and hydro-PRT. On the other hand, its government solutions segment provides long-term technology solutions in AI, data management, cybersecurity, defense modernization, advisory and consulting, nuclear energy, and asset management.
During the second quarter of 2024, the company announced an agreement to acquire LinQuest, an engineering and data analytics company. The acquisition will help the company accelerate its position in delivering high-end technological solutions. More recently, KBR, Inc. (NYSE:KBR) marked a milestone, after its proprietary ROSE technology was selected by Zhejiang Petroleum for its largest unit in China. In addition to that the company also bagged contracts in Brazil, established training centers in Iraq, extended support for programs in Australia, and expanded supply in Europe.
Overall, KBR, Inc. (NYSE:KBR) holds a unique position in the industry. Its footprint is continuously expanding and with its diversified offerings, it sure possesses an upward trajectory. At the end of Q2 2024, 56 hedge funds were bullish on KBR.
Cove Street Capital Small Cap Value Fund stated the following regarding KBR, Inc. (NYSE:KBR) in its Q2 2024 investor letter:
“On the plus side, KBR, Inc. (NYSE:KBR) has been a strong performer so far YTD on the back of an investor day in the second quarter that highlighted the success of the last four-year plan (2020-2023) before laying out ambitious but credible targets for the next 4 years (2024- 2027). Since 2020, KBR has pivoted their commercial business away from high-risk EPC projects to a more differentiated IP-first consulting approach that now sees 20% EBIT margins and contributes 40% of their overall profitability. KBR has cleaned up their balance sheet by settling convertible notes and warrants and now sits at a healthy 2x net leverage. With the upcoming ramp of a $20B government services contract with the U.S. army, the company is well positioned to generate cash and return value to shareholders.”
3. United States Steel Corporation (NYSE:X)
Number of Hedge Fund Holders: 58
Market Capitalization as of October 10, 2024: $8.02 Billion
United States Steel Corporation (NYSE:X) is a steel manufacturer based in Pittsburgh, Pennsylvania. The company was founded in 1901 and now sells steel products such as flat-rolled and tubular products for customers in various industries including automotive, construction, consumer, electrical, and industrial equipment.
In the second quarter of 2024, the company reported $183 million in net earnings and $211 million in adjusted net earnings. During the same quarter, the company logged $4.12 billion in revenue. While the revenue declined by nearly 18% due to rising steel prices, United States Steel Corporation (NYSE:X) remained resilient and accelerated growth on the efficiency and strategic investments side.
The company is making headlines for its acquisition by Nippon Steel Corporation (NSC). According to its Q2 earnings report, the company is progressing towards closing the transition before the end of 2024. The transaction, if executed, will position the newly joint company as a leader in the industry. Nippon Steel Corporation (NSC) agreed to invest another $1.4 billion in capital expenditures into facilities covered by the basic labor agreement. However, the transaction is subject to immense legal scrutiny and may either push back the closing of the deal or cancel it altogether.
With or without NSC, United States Steel Corporation (NYSE:X) adds a lot of value to the steel industry in terms of its fundamentals. The company has several strategic initiatives in the pipeline that are expected to close before the end of 2024, making it a promising stock according to hedge funds.
2. Elastic N.V. (NYSE:ESTC)
Number of Hedge Fund Holders: 58
Market Capitalization as of October 10, 2024: $8.21 Billion
Elastic N.V. (NYSE:ESTC) is a data analytics company based in the Netherlands that ranks on our list of the most promising mid-cap stocks according to hedge funds. The American-Dutch software company offers generative AI solutions, search solutions, and cyber-security solutions. Some of its customers include Dish, Booking.com, T Mobile, Land Rover, and Cisco.
In the fiscal first quarter of 2025, the company increased total revenue by 18.27% and cloud revenue grew by 30%. The company has over 1,370 customers with a contract value of more than $100,000 per annum. The company is also leveraging artificial intelligence to drive growth for its business. More than 1,300 customers use its cloud platform for generative artificial intelligence. Recently, the company announced the general availability of Google Cloud’s Vertex AI on its Open Inference API. Developers can now use Vertex AI’s tools to build production applications on the Elasticsearch vector database.
Elastic N.V. (NYSE:ESTC) believes its unique set of product offerings should be made available across the globe. Last month, the company signed an agreement with Arrow Electronics to increase the distribution of its AI-backed security, observability, and search solutions in the United States and Canada. The general availability of these solutions via Arrow will simplify the process for people willing to work with Elastic.
Currently, more than 50% of the Fortune 500 use the company’s proprietary platform, Elastic Search AI platform. The company’s expansion strategy coupled with its powerful data use cases sets it apart, making it a future market leader.
Artisan Partners’ Artisan Global Discovery Fund stated the following regarding Elastic N.V. (NYSE:ESTC) in its Q2 2024 investor letter:
“During the quarter, we initiated new GardenSM positions in Liberty Formula One, Elastic N.V. (NYSE:ESTC) and Onto Innovation. Elastic is a software company that specializes in search and data analysis solutions. Elastic’s search, observability and security solutions are built on the Elastic Search AI Platform, which thousands of companies use, including more than 50% of the Fortune 500. Customers use the software to gain visibility into their data, reduce mean-time-to-resolution and drive actionable outcomes. We believe the company will benefit from the rise of generative artificial intelligence (AI). It provides a differentiated offering due to the combination of a unique pricing model based on consumption, products that handle numerous data types and volumes, and an open architecture environment that offers generative AI development flexibility.”
1. Roivant Sciences Ltd. (NASDAQ:ROIV)
Number of Hedge Fund Holders: 62
Market Capitalization as of October 10, 2024: $8.51 Billion
Roivant Sciences Ltd. (NASDAQ:ROIV) ranks first on our list of the most promising mid-cap stocks according to hedge funds. The commercial biotechnology company is engaged in drug development using technology. Some of its subsidiaries include Immunovant, Dermavant Sciences, Priovant Therapeutics, and Lokavant Inc., to name a few.
The past quarter has been quite a feat for the company. In the fiscal first quarter of 2024, Roivant Sciences (NASDAQ:ROIV) announced the completion of enrollment in a trial for its drug, batoclimb. Moreover, in June, the company completed the end of its phase 2 meeting with the FDA and shared plans to commence phase 3 trials for its popular drug, brepocitnib. VTAMA, its novel drug approved for the treatment of psoriasis, brought in revenue worth $18.4 million during FQ1 2024.
Since 2019, the company has executed 10 positive phase 3 trials. By March 2025, Immunovant, its subsidiary, is set to have registered 4-5 indications and/or programs and 10 by March 2026. To align with this goal, the subsidiary is expected to have registered at least 3 programs by the end of 2024.
Overall, Roivant Sciences Ltd. (NASDAQ:ROIV) spent $133.2 million on research and development during the quarter, up by $8.1 million from FQ1 2023. The company’s expansion strategy lies in establishing nimble subsidiaries to commercialize its drugs and technologies. One can say its strategy is working out fine, explaining why 62 hedge funds were bullish on the stock. In addition to that, analysts’ price target of $17 points to an upside of 48% from current levels, as of October 10, 2024.
Tourlite Capital Management made the following regarding Roivant Sciences Ltd. (NASDAQ:ROIV) in its fourth quarter 2023 investor letter:
“During the fourth quarter, the fund initiated a significant position in Roivant Sciences Ltd. (NASDAQ:ROIV), a biotech company specializing in consolidating promising drug patents, known as ‘vants’. Our thesis is based on the following framework:
Cash value: ROIV’s strategic acquisition of Televant (85% ownership) from Pfizer for $45 million in December 2022, followed by the sale of this asset to Roche for $5.2 billion in Q4 2024, showcases management’s ability for value creation Adjusting for the sale proceeds, Roivant has a net cash position of ~$8 per share…” (Click here to read the full text)
Overall, ROIV ranks first among the 10 most promising mid-cap stocks according to hedge funds. While we acknowledge the potential of biotechnology companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ROIV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
