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.”
8. Valaris Ltd. (NYSE:VAL)
Forward P/E Ratio as of March 5: 5.43
Number of Hedge Fund Holders: 49
Valaris Ltd. (NYSE:VAL) is a leading offshore drilling contractor that operates a diverse fleet of drillships, semisubmersibles, and jackups. It provides crucial drilling services to oil and gas companies across global offshore locations.
Its Floater segment involves deepwater drilling operations. It’s a primary driver of revenue, particularly due to its fleet of high-specification and seventh-generation drillships. The company has 15 floaters, with 12 being advanced drillships, which indicates a focus on modern and technically capable assets. The company is pursuing long-term contracts and tracking 20+ opportunities with durations of at least one year. It’s anticipating ~30 potential contracts when Petrobras launches new tenders.
The company is managing its fleet by retiring older and less efficient rigs. Recently, it announced the retirement of 3 semisubmersibles, which included 1 active rig. Lower floater utilization is expected to impact 2025 revenues and contribute to a forecasted decline compared to 2024. However, Valaris Ltd. (NYSE:VAL) is actively lowering costs for rigs (that are expected to have idle time) to mitigate this impact. It has 4 drillships with uncontracted time in 2025, with expected idle time for 3 of those drillships after their current contracts end.
Praetorian Capital believes that the company is significantly undervalued. It is poised for substantial profit as the decade-long offshore drilling bear market reverses, given its vast and valuable fleet. It stated the following regarding Valaris Ltd. (NYSE:VAL) in its Q4 2024 investor letter:
“In 2010, at the dawning of the age of shale, offshore oil production accounted for approximately 31% of global oil supply. As shale has encroached on offshore, that number has declined to only 27% of total oil production in 2024. As you can imagine, this has led to a bear market in offshore services equipment that has lasted for more than a decade and bankrupted almost all players in the sector. This offshore equipment (Drillships, Semi-Subs, Jackups, PSVs, AHTS, and other associated pieces of highly engineered steel) is what we own through positions in Valaris Limited (NYSE:VAL), Tidewater (TDW -USA) and Noble (NE – USA), as I believe that the decade-long bear market has now ended, and that the call on this equipment will lead to excess profits for these companies for many years into the future.
Since Valaris is this Fund’s largest position, I thought it would be helpful to focus the rest of our offshore services discussion on it, though we also have substantial positions in Tidewater, the world’s largest player in Offshore Service Vessels (OSVs) and Noble, another owner of high-spec Drillships. At the close of trading on December 2024, Valaris had a market cap of $3.15 billion, and a net debt position of appx. $800 million (as of Q3 2024), for an Enterprise Value of approximately $3.9 billion. What do you get for this price?? You get 12 of the higher spec 7th Generation Drillships, and 1 of the better 6th Generation Drillships. You also get 5 Semi-Subs, 33 modern Jackups (JU) and a 50% ownership in a JU joint-venture with Saudi Aramco (ARO) that owns an additional 9modern JUs. By our math, it would cost well in excess of $1 billion to build and activate each fully equipped 7G, and in excess of $ $250 million per JU. Not that anyone would try to recreate this selection of assets today through a newbuilding program, but you’d be hard pressed to do it for under $25 billion—making our $3.9 billion EV an interesting starting point for us as value investors…” (Click here to read the full text)
7. Mohawk Industries Inc. (NYSE:MHK)
Forward P/E Ratio as of March 5: 11.83
Number of Hedge Fund Holders: 49
Mohawk Industries Inc. (NYSE:MHK) is a global flooring giant that offers a vast array of flooring solutions, from ceramic tile and natural stone to carpets and wood flooring. It caters to both residential and commercial needs across diverse markets worldwide.
The company’s Global Ceramic segment generated over $1 billion in sales during the Q4 2024, which was driven by a favorable product mix and additional shipping days, despite pricing pressures and foreign exchange headwinds. This segment encompasses the manufacturing and distribution of ceramic tiles and related products across international markets. It makes up a significant portion of the company’s income and growth through its international reach and product innovation.
The Global Ceramic segment is now focusing on strategies like elevating product offerings through advanced technologies, expanding distribution channels in the US and Europe, and integrating recent acquisitions in Mexico and Brazil. Mohawk Industries Inc. (NYSE:MHK) is also implementing cost containment initiatives, which include product reengineering and process improvements. It’s also restructuring its Mexican ceramic operations, which is expected to yield ~$20 million in annual savings.
Ariel Fund is positive on Mohawk Industries Inc. (NYSE:MHK) due to its strong earnings, improved guidance, share repurchases, and a belief that the company is well-positioned for long-term growth. It stated the following regarding the company in its Q3 2024 investor letter:
“Several stocks in the portfolio had strong returns in the quarter. Manufacturer and distributor of floorcovering products, Mohawk Industries, Inc. (NYSE:MHK) advanced following solid earnings results and a subsequent increase in near-term guidance. Although sales volumes remain low and pricing headwinds continue, improved productivity and lower material costs drove margin expansion. Management also repurchased shares signaling increased confidence that the trough in earnings may be behind the company. In our view, MHK’s healthy balance sheet and progress managing through economic cycles position the company to benefit from long-term growth in residential remodeling, new home construction and commercial projects.”
6. Cinemark Holdings Inc. (NYSE:CNK)
Forward P/E Ratio as of March 5: 13.76
Number of Hedge Fund Holders: 50
Cinemark Holdings Inc. (NYSE:CNK) is involved in the motion picture exhibition business. It operates theatres in the US and Latin America mainly. In its theatrical exhibition, it provides a premium movie-going experience. In 2024, it entertained over 200 million guests globally, which showcased the enduring appeal of cinema.
The North American box office reached ~$8.8 billion in 2024, which marked a recovery despite industry-wide challenges. This company outperformed the industry and exceeded benchmarks by 3% domestically and 1% internationally. It achieved worldwide revenue exceeding $3 billion and also made $315 million in free cash flow. It achieved record-breaking concession sales, with a domestic food and beverage per capita record of $7.89.
The company’s loyalty program, Movie Club, grew by 10% in 2024 to ~1.4 million subscribers, which contributed to 25% of domestic box office sales. Premium Large Format (PLF) screens, which make up 5.5% of the company’s total screens, accounted for 13.4% of its box office proceeds. Cinemark Holdings Inc. (NYSE:CNK) now plans to enhance the guest experience through investments in laser projectors, premium recliner seats, and PLF screens. It’s also focusing on concession innovation, expanding hot food options, and improving ordering processes.
Carillon Chartwell Small Cap Value Fund stated the following regarding Cinemark Holdings Inc. (NYSE:CNK) in its Q3 2024 investor letter:
“Cinemark Holdings, Inc. (NYSE:CNK) operates movie theaters across North and South America. Recent results benefited from a better than expected summer box office performance. Investors also began to anticipate a stronger slate of movie releases in coming years.”
5. Comerica Inc. (NYSE:CMA)
Forward P/E Ratio as of March 5: 11.12
Number of Hedge Fund Holders: 50
Comerica Inc. (NYSE:CMA) is a diversified financial services company. It delivers a suite of banking and wealth management solutions across the US, Canada, and Mexico. It serves businesses, individuals, and high-net-worth clients.
Its Commercial Banking segment has a focus on middle-market and corporate lending. Despite industry-wide challenges in 2024, the company demonstrated strength in this segment in Q4 2024. Its focus on building and maintaining client relationships translates directly into loan growth potential. While overall loan demand was soft, Comerica Inc.’s (NYSE:CMA) projections indicate targeted growth with full-year average loans projected to be flat to up 1% in 2025, and 2% growth excluding commercial real estate.
In Q4, customer deposits grew by over $800 million, or over 1%. It projects full-year average customer deposits to grow 1% in 2025. This directly impacts the company’s Net Interest Income (NII), which is a core component of its profitability. The company projects a 6% to 7% increase in full-year 2025 NII due to its management of the loan and deposit mix, alongside careful interest rate risk mitigation.
Ariel Global Fund sees Comerica Inc. (NYSE:CMA) as a strong investment opportunity. The firm believes that it’s well-positioned to benefit from future economic growth and rate adjustments, despite current challenges. Here’s what it said in its Q3 2024 investor letter:
“We purchased Comerica Incorporated (NYSE:CMA) a financial holding company whose revenue is primarily generated across three business segments: the Commercial Bank, the Retail Bank and Wealth Management. The company offers a high-touch business model with an enhanced focus on long-term customer relationships. Lower deposit levels and declining demand for loans driven by the Fed’s quantitative tightening regime as well as deteriorating credit conditions presented an attractive entry point. Looking ahead, we believe the company is well-positioned to take advantage of economic growth, which should lead to enhanced deposit gathering and loan generation. Additionally, we expect more moderate rate cuts to allow for margin expansion and slower deposit cost increases. At today’s valuation, we believe the risk/reward is skewed to the upside.”
4. Abercrombie & Fitch Co. (NYSE:ANF)
Forward P/E Ratio as of March 5: 8.35
Number of Hedge Fund Holders: 51
Abercrombie & Fitch Co. (NYSE:ANF) is a global omnichannel retailer that provides a range of apparel, personal care, and accessories through its popular brands. These include Abercrombie & Fitch, Hollister, and Gilly Hicks. All of these serve customers across multiple channels worldwide.
Abercrombie Brands is a major growth driver for this company and achieved record net sales in Q3 2024. The brand’s net sales experienced a 15% year-over-year increase. This success was driven by sweaters, dresses, jeans, and fleece, with balanced growth between genders. Both unit sales and average unit retail (AUR) contributed to this growth, which also indicated reduced reliance on promotions. Abercrombie Brands is expanding its physical footprint, with plans to open ~40 new stores in 2024.
Abercrombie Brands is implementing marketing campaigns across digital and social channels to drive sales. Abercrombie & Fitch Co. (NYSE:ANF) is investing in new and existing store locations to capitalize on increased traffic and maintain productivity. It’s maintaining clean inventory and ensuring product availability to meet customer demands. Furthermore, the brand is experiencing strong global growth, with double-digit sales increases across the Americas, EMEA, and APAC regions.
ClearBridge Mid Cap Growth Strategy is positive on Abercrombie & Fitch Co. (NYSE:ANF) due to its successful brand repositioning, profitable growth strategy, and focus on key demographics. It stated the following in its Q3 2024 investor letter:
“We are encouraged by the high proportion of positive returns on new ideas added over the last five quarters of elevated new idea generation, with solid contributions to overall performance despite their representing a modest portion of the Strategy’s assets.
We continued to deliver strong new idea generation, adding four new investments in the quarter: OneStream (through participating in its IPO), Abercrombie & Fitch Co. (NYSE:ANF), Wintrust Financial, and FTAI Aviation.
Abercrombie & Fitch is a global retailer with two primary brands, A&F and Hollister, providing apparel and accessories targeting millennials and Gen Z, respectively. Following multiple years of mis-execution, the company has repositioned its brands for durable growth, rationalized its store footprint, and is growing profitably with a nimble, fast-follower fashion strategy.”
3. Bath & Body Works Inc. (NYSE:BBWI)
Forward P/E Ratio as of March 5: 9.51
Number of Hedge Fund Holders: 57
Bath & Body Works Inc. (NYSE:BBWI) is a leading specialty retailer. It provides a variety of home fragrance, body care, and soap products through its retail stores and online platforms, both domestically and internationally.
The company’s North American Stores segment generated $2.1 billion in net sales during Q4 2024. While this is a 2% decrease year-over-year, the company shifted its store portfolio to better align with consumer preferences. One development is the transition to a predominantly off-mall retail model, with 57% of its North American stores now located in off-mall locations. In 2024, it opened 106 new stores in North America, with the majority being off-mall locations. It also expanded the overall store square footage by 3% throughout the year.
Its loyalty program has 39 million active members. Bath & Body Works Inc. (NYSE:BBWI) plans to expand its off-mall presence, targeting a 75% off-mall store mix over time. Enhancements to the loyalty program are planned to improve customer engagement and redemption rates. The company is planning capital expenditures between $250 million and $270 million in 2025, with a focus on real estate and technology.
2. Norwegian Cruise Line Holdings (NYSE:NCLH)
Forward P/E Ratio as of March 5: 10.6
Number of Hedge Fund Holders: 58
Norwegian Cruise Line Holdings (NYSE:NCLH) is a global cruise company that offers a range of vacation experiences through its Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. It provides passengers with exceptional itineraries and onboard amenities across numerous international destinations.
The company’s onboard revenue segment achieved a record 10% net yield growth in 2024. Onboard revenue includes all spending by cruise passengers during their voyage, beyond the initial ticket price. This includes dining, beverages, retail, and entertainment purchases. This growth exceeded initial forecasts by 4.5%. Enhancements to the onboard guest experience, which include improved Wi-Fi and entertainment, have fueled this growth. Strategic partnerships, such as those with the NHL and Aston Martin, have also contributed.
Norwegian Cruise Line Holdings (NYSE:NCLH) continues to enhance onboard experiences through development at Great Stirrup Cay, with a new pier designed to increase passenger capacity and onboard spending. Great Stirrup Cay is the company’s private island destination in the Bahamas for exclusive beach experiences and onboard-like amenities to its passengers. Further technological advancements and the development of premium onboard offerings within luxury brands are also increasing revenue from this segment.
Ariel Small Cap Value Strategy stated the following regarding Norwegian Cruise Line Holdings (NYSE:NCLH) in its Q4 2024 investor letter:
“Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) advanced over the period following a top- and bottom-line earnings beat and subsequent raise in full-year guidance. Stronger than anticipated consumer demand, healthy onboard spending, robust pricing, solid cost containment and continued progress on leverage reduction boosted results. Looking ahead, NCLH remains focused on right sizing its cost base and improving margins to further strengthen its foundation for sustainable and profitable growth. With a young average fleet and solid liquidity position, we remain enthusiastic about the name.”
1. Wesco International Inc. (NYSE:WCC)
Forward P/E Ratio as of March 5: 12.03
Number of Hedge Fund Holders: 62
Wesco International Inc. (NYSE:WCC) is a business-to-business distributor that delivers comprehensive supply chain solutions across electrical, communications, and utility sectors. It offers a wide array of products and services to customers globally.
In Q4 2024, sales in the Data Center Solutions segment (within its Communications and Security Solutions business unit) surged by over 70% year-over-year. This was driven by demand from various data center customers, which include hyperscale, multi-tenant, and enterprise clients. Consequently, data center solutions accounted for ~40% of the CSS segment’s total sales, and ~16% of the company’s overall sales in Q4.
The segment’s backlog also increased by 16% from a year-ago period. Wesco International Inc. (NYSE:WCC) strengthened its position in this market through acquisitions, notably that of Ascent, which provides data center facility management services. This acquisition enhances the company’s ability to offer comprehensive solutions throughout the entire data center lifecycle, from initial construction to ongoing operations and technology upgrades.
Blue Tower Asset Management sees Wesco International Inc. (NYSE:WCC) as an undervalued play on infrastructure growth related to solar, EVs, and AI, despite its higher leverage compared to peers. Here’s what it said regarding the company in its Q3 2024 investor letter:
“In this letter, I will be exploring our holding in WESCO International, Inc. (NYSE:WCC), an electric infrastructure, component, and communication equipment distributor. These distributors are another indirect way to profit from the ongoing boom in solar technology, electric vehicles, and AI technology. Despite the big boost that these technology trends should provide to these distributor businesses, these distributors are not trading at the expensive multiples of AI-related stocks. While most electric component distributors are benefitting from these trends, Wesco is still realizing the integration benefits from a major 2020 merger and is more levered than peers.
Wesco originated in the Westinghouse Electric and Manufacturing Company in 1922, where it was originally the distribution arm of Westinghouse’s electrical and industrial products.
On February 1, 1994, private equity firm Clayton, Dubilier & Rice (CD&R) purchased Wesco from Westinghouse in a $340M leveraged buyout. Wesco was again sold just 4 years later to The Cypress Group which created the holding company Wesco International. In 1999, the company went public. Over the past 20 years, Wesco engaged in over a dozen acquisitions, growing the scale and geographic scope of the company. In 2020, Wesco completed its largest acquisition with the takeover of Anixter International when it used a combination of cash, Wesco shares, and preferred stock to beat out an offer from CD&R…” (Click here to read the full text)
While we acknowledge the growth potential of Wesco International Inc. (NYSE:WCC), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WCC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
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