Market analysts are increasingly highlighting mid-cap stocks as a potentially attractive investment opportunity, particularly in the current economic climate. These stocks offer a balance between the stability of large-cap companies and the growth potential of small-cap firms. In February, Global Investment Strategist at ProShares Advisors Simeon Hyman also shared that he sees mid-cap stocks as a current market “sweet spot.” We covered his sentiment earlier in our 10 Best Performing Mid Cap Stocks to Buy According to Analysts article. Here’s an excerpt from it:
“Currently, mid-caps are undervalued, offering investors about $0.50 on the dollar, a situation that hasn’t occurred with small caps despite their underperformance… mid-caps also have a strong domestic focus, with about 75% of their revenues coming from domestic sources… mid-caps generally offer higher quality than small caps, lacking the losses and negative earnings often seen in small-cap companies.”
Earlier on January 25, Jill Carey Hall, BofA global research head of US small and mid-cap strategy, joined CNBC’s ‘Closing Bell’ to discuss small-cap headwinds and the opportunity in domestic mid-caps. She noted that the backdrop for the Russell 2000 remains challenging, with the profit growth recovery story that many investors were optimistic about last year continuing 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 this segment. In contrast, mid-caps have shown better fundamentals, making them a more attractive option for investors seeking a favorable risk-reward balance, especially in an environment where multiple rate cuts have been priced out of the market.
Hall highlighted that interest rates still play a crucial role in market dynamics. Bank of America’s economists expect the Fed to maintain its current stance without further cuts, which could pose refinancing risks for small caps. Mid-caps, on the other hand, have better balance sheets and fundamental trends, which positions them more favorably. Despite the optimism around economic policies and potential deregulation, Hall noted that small caps face a high bar for investor confidence after a decade of underperformance. Historically, small caps are due for an outperformance cycle, and relative valuations suggest they could offer the best price returns over the next decade. However, for this year, investors are cautious about reentering the small-cap space without a more convincing profit turnaround. Stabilizing or potentially lower interest rates could be beneficial for small caps, as these factors have significantly influenced rallies and sell-offs in the Russell 2000.
She suggested focusing on smaller mid-caps with profits, less leverage, and less refinancing risk, or those that are economically sensitive. Given Hall’s sentiment, we’re here with a list of the 10 worst-performing mid-cap stocks to buy according to analysts.
Methodology
We used the Finviz stock screener to compile a list of the worst-performing mid-cap stocks that were trading between $2 billion and $10 billion. We then picked the top 10 stocks with 6-month declines higher than 50% and an average upside potential of over 30%. The stocks are ranked in ascending order of their upside potential. We have also added the hedge fund sentiment for each stock, as of Q4 2024, which was sourced from Insider Monkey’s database.
Note: All data is as of February 26.
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 Worst Performing Mid Cap Stocks to Buy According to Analysts
10. e.l.f. Beauty Inc. (NYSE:ELF)
6-Month Performance as of February 26: -53.36%
Upside Potential as of February 26: 35.99%
Number of Hedge Fund Holders: 35
e.l.f. Beauty Inc. (NYSE:ELF) is a global cosmetics and skincare company. Operating under a portfolio of brands, it delivers products across multiple channels. These range from major retailers to its own expanding e-commerce platform. It continues to expand its reach and product offerings.
In FQ3 2025, its color cosmetics segment grew 16% year-over-year, while the overall market shrank 5%. This difference allowed the company to gain a 2.2% market share. It’s now the top-selling brand in terms of the number of units sold, with 14% of the market. It’s also the second highest-selling brand in terms of dollar sales, holding 12% of the market. It doubled its market share in just three years.
Partnerships with retail stores help the company expand. It’s the number one brand at Target, with over 20% of the market. It also moved up to the number two spot at Walmart. It’s also expanding through new products. It had 6 of the top 10 new makeup product launches in 2024. In Q3, sales of face, lip, and eye makeup increased. Although the overall sales forecast for FY25 was slightly lowered to 27-28% growth, e.l.f. Beauty Inc. (NYSE:ELF) plans to continue growing by introducing new versions of popular products and using strong marketing strategies.
Polen US Small Company Growth Strategy sees e.l.f. Beauty Inc.’s (NYSE:ELF) stock decline as a temporary buying opportunity, driven by short-term concerns. The firm maintained strong confidence in its long-term growth potential and market share expansion. It stated the following in its Q3 2024 investor letter:
“The Portfolio’s top detractors were Progyny, elf Beauty, and Alarm.com. E.l.f. Beauty, Inc. (NYSE:ELF), a discount beauty company focused on cosmetics and skincare, is a new addition to the Portfolio this quarter. Please see Portfolio Activity below for further detail. We are intrigued by the company’s impressive track record for growth, margins, and returns on capital. While elf has reported significant results all year, shares came under pressure, in our view, as short-term investors primarily appeared to anticipate a slowdown in revenue growth, possibly due to investor concerns of market saturation, economic conditions, and valuation concerns, among other factors. While we are confident in how we underwrote our initial investment for returns above the portfolio average, the stock has come under even more pressure than we anticipated. We used this weakness to add to our position. We’re intrigued by the strength elf has experienced across its retailer and ecommerce channels, particularly in taking market share in a challenging consumer environment, given their relatively inexpensive prices vs. competitors.
elf Beauty, described above, is a discount beauty company focused on cosmetics and skincare. We find the company’s reputation for quality, innovation, and prices below mass cosmetics brands to be uniquely positioned. While this combination of innovation, quality, and value has led to compelling growth, we still believe it’s early days for the company. elf’s brand awareness is significantly less than that of more prominent players; it is still adding shelf space, expanding its product portfolio, and entering the skincare market. elf is also still a US-focused business, with some early signs of international success. The company’s financial profile is strong, and we expect EPS to grow by 25% over the long term.”
9. TransMedics Group Inc. (NASDAQ:TMDX)
6-Month Performance as of February 26: -57.10%
Upside Potential as of February 26: 43.15%
Number of Hedge Fund Holders: 29
TransMedics Group Inc. (NASDAQ:TMDX) provides organ transplant therapy through its innovative Organ Care System (OCS). It provides a unique platform that preserves and optimizes donor organs outside the body, significantly improving transplant outcomes. With specialized OCS systems for lungs, hearts, and livers, alongside a national OCS program for organ retrieval and logistics, it is expanding the availability of life-saving transplants.
The company’s transplant logistics network is a major growth driver and made a revenue of $20.1 million in Q3 2024. This was an increase from $2.1 million a year ago and also represented a 5% sequential increase. This reflects its expanding infrastructure and service demand. The company is building its own fleet, reaching 18 aircraft by Q3. It also invested in a maintenance hub in Dallas. Its planes covered 61% of organ transport missions in Q3, up from 59% in Q2, even with scheduled maintenance.
However, these investments impacted margins. Q3 gross margin was 56%, down from 61% in Q2, due to infrastructure spending and using more third-party transport. Margins are expected to improve as TransMedics Group Inc. (NASDAQ:TMDX) scales. The company is now maintaining its yearly revenue guidance of $425-$445 million, which represents a 76-84% growth. It’s also developing advanced organ preservation technology which aims for more efficient transplants.
Invesco Discovery Fund stated the following regarding TransMedics Group Inc. (NASDAQ:TMDX) in its Q2 2024 investor letter:
“TransMedics Group, Inc. (NASDAQ:TMDX)offers transplant therapy for end-stage organ failure patients across multiple diseases. Management reported strong quarterly results and raised 2024 guidance above consensus expectations. The company has been helping to increase the size of the US transplant market as it has delivered more donor organs to recipients faster with its unique service offering.”
