Mid-cap stocks are often seen as a balanced investment option. They offer a mix of growth potential and financial stability, and have historically outperformed large-cap and small-cap stocks over longer periods for this reason, as mentioned earlier in February by Simeon Hyman, Global Investment Strategist at ProShares Advisors. We covered his detailed sentiment in our 10 Best Performing Mid Cap Stocks to Buy According to Analysts article. Mid-caps are considered undervalued in some cases and provide opportunities for investors seeking quality at a discount. Their domestic focus and higher earnings quality compared to small caps make them an attractive choice for stable growth.
This sentiment was covered earlier on January 25 by Jill Carey Hall, BofA global research head of US small and mid cap strategy. She appeared on CNBC’s ‘Closing Bell’ to discuss small cap headwinds and the opportunity in domestic mid caps due to a tough backdrop for the Russell 2000. The profits growth recovery story for small caps, which many investors were optimistic about last year, has continued to be revised downward and pushed further into 2025. As a result, small-cap profits have continued to disappoint, with negative year-over-year earnings growth still prevalent. In contrast, mid-caps have shown better fundamentals. Hall emphasized that if the market broadens out, mid-caps could offer the best risk-reward, especially in an environment where multiple rate cuts have been priced out of the market. Her economists at BofA expect the Fed to remain on hold without further cuts. This scenario poses refinancing risks for small caps, which have reemerged as rate risks have increased. Mid-caps, however, have better balance sheets and fundamental trends, making them a preferable choice within the small and mid-cap space.
Interest rates also influence small-cap performance. Despite optimism around the economy and potential policies from Trump 2.0, small caps have struggled to achieve sustained gains after brief rallies. Historically, small caps have underperformed for over a decade. While relative valuations suggest they could outperform over the next decade, near-term challenges persist. Investors are cautious due to high expectations and ongoing profit disappointments. Hall noted that rate stabilization or potential rate cuts could support small caps, but Fed policy has been a major driver of recent volatility in this segment. For instance, December marked the worst month for small-cap performance relative to large caps in over 25 years following a hawkish Fed meeting. This year, Hall recommended focusing on companies with strong profits, lower leverage, reduced refinancing risks, or economic sensitivity. Financials appear well-positioned to benefit from potential deregulation or an uptick in M&A. Additionally, stocks with upward earnings revisions have outperformed recently and remain attractive targets.
In this context, we’re here with a list of the 10 most undervalued mid cap stocks to buy according to hedge funds.
Methodology
We used the Finviz stock screener to compile a list of the top mid-cap stocks that were trading between $2 billion and $10 billion, and had a forward P/E ratio under 15 each. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Most Undervalued Mid Cap Stocks to Buy According to Hedge Funds
10. FMC Corp. (NYSE:FMC)
Forward P/E Ratio as of March 5: 10.34
Number of Hedge Fund Holders: 48
FMC Corp. (NYSE:FMC) is a global agricultural sciences company. It empowers farmers worldwide by delivering a portfolio of crop protection solutions. These include insecticides, herbicides, fungicides, and biologicals that are designed to enhance crop yield and quality.
The company’s line of diamide insecticides makes major contributions to its overall growth and revenue. These are a class of synthetic insecticides that disrupt insect muscle function, which leads to paralysis and death. Rynaxypyr insecticide of this line is in the $5 billion caterpillar control market, and is transitioning to a post-patent phase. This will introduce generic competition by 2026. The company will counter this by offering lower-priced and branded solo formulations.
Manufacturing cost reductions for Rynaxypyr will impact partner sales due to cost-plus pricing, which will contribute to a forecasted decline in 2025 Rynaxypyr sales. FMC Corp. (NYSE:FMC) is prioritizing channel inventory reduction, which will also affect 2025 sales. Following a 2025 correction, Rynaxypyr is projected to achieve high single-digit growth. 2025 will be a pivotal year and will set the company’s growth trajectory for 2026 and 2027.
9. Fluor Corp. (NYSE:FLR)
Forward P/E Ratio as of March 5: 13.85
Number of Hedge Fund Holders: 48
Fluor Corp. (NYSE:FLR) is a global engineering and construction giant. It delivers project solutions across diverse sectors, which include urban infrastructure, energy transition, and government missions. It provides engineering, procurement, and construction services worldwide.
The company’s Urban Solutions segment, particularly its Advanced Technologies & Life Sciences (ATLS) business, is a major growth driver. This business constructs and manages complex projects for industries like pharmaceuticals, semiconductors, and data centers. The segment’s profit for Q4 2024 was $81 million. Its full-year 2024 backlog increased by 20%, reaching $17.7 billion, which was up from $14.8 billion a year ago.
The ATLS business secured an additional $243 million award for Lilly’s LP1 project in Indiana, which has grown from 200 to 1,000 personnel in 2024, with further expansion expected in 2025. This project refers to a manufacturing facility being constructed by Eli Lilly and Company in Lebanon, Indiana. Fluor Corp. (NYSE:FLR) has also entered a master agreement for data center work, using existing experience in Asia and Europe, and is engaging with the top four data center developers. It sees the data center market as a significant growth area.
ClearBridge Small Cap Growth Strategy initiated an investment in Fluor Corp. (NYSE:FLR), seeing it as well-positioned to capitalize on growth in key sectors like data centers and nuclear energy. It stated the following in its Q4 2024 investor letter:
“2024 proved a particularly active year for new idea generation: we added 23 new investments while exiting 29 due to a variety of considerations, including acquisitions, market capitalization constraints, and our assessment of forward return potential. While many of the new investments we made during the year are of relatively modest size, we will continue to build these positions over time provided company execution and end market prospects remain intact. In the fourth quarter we initiated five new investments: Oscar Health, TG Therapeutics, Clearwater Analytics, Fluor Corporation (NYSE:FLR) and Modine.
Fluor is one of the largest engineering, procurement and construction firms, with global scale supporting megaprojects across various end markets. With an improved contract structure mix and balance sheet, the company is poised to benefit from an array of high-priority investment projects in markets such as data centers, GLP-1 manufacturing, mining and nuclear energy.”
