In this article, we will explore the 7 most profitable mid-cap stocks to invest in.
Inflation Data Raises Concerns
On October 10, the market faced a decline as economic data indicated persistent inflation, as reported by CNBC. The S&P 500 fell by 0.21%, closing at 5,780.05, while the Dow Jones Industrial Average decreased by 57.88 points, or 0.14%, to finish at 42,454.12. The Nasdaq Composite also dipped slightly, ending down 0.05% at 18,282.05.
The market reaction was largely influenced by the Consumer Price Index (CPI) report for September, which showed a monthly increase of 0.2%. This brought the annual inflation rate to 2.4%, slightly above analysts’ expectations of a 0.1% monthly gain and a year-over-year rate of 2.3%. Although this annual figure is the lowest since February 2021, some underlying data suggested stronger inflationary pressures than anticipated.
Luke O’Neill, a portfolio manager at CooksonPeirce, noted that the CPI report was as expected in most respects but highlighted that certain data points were “a little bit hotter than anyone would prefer.” He pointed out that investors were selling off small- and mid-cap stocks that are more sensitive to interest rates.
In response to the CPI report, Atlanta Fed President Raphael Bostic stated he was open to pausing interest rate cuts during the upcoming November meeting. He expressed that the current market fluctuations might warrant a more cautious approach rather than aggressive cuts. However, according to CME Group’s FedWatch Tool, fed funds futures trading data suggests an approximately 85% chance of a quarter-percentage-point cut.
Recent minutes from the Federal Reserve’s last meeting revealed some disagreement among officials regarding the size of September’s rate cut. While the majority supported the cut, some favored a smaller move.
On October 11, Northwestern Mutuals’ Brent Schutte appeared on CNBC’s “Power Lunch” to discuss the CPI report and the market reaction.
Brent Schutte, Chief Investment Officer at Northwestern Mutual, expressed concerns about a potential wage-price spiral, noting that significant wage increases at companies like Amazon and Walmart could contribute to ongoing inflation. He highlighted the Federal Reserve’s challenge in managing this situation, as they often react too late to labor market changes. Schutte pointed out that even with recent rate cuts, inflation remains a concern, particularly with the median CPI rising. He believes the Fed’s path forward will be more complex than investors anticipate, given the persistent inflationary pressures in the economy.
Schutte also expressed concern about the valuations of large-cap stocks, suggesting that the market is in a late-cycle phase. He noted that the economy is currently supported by a narrow segment, particularly manufacturing and lower-income consumers affected by rising interest rates. Schutte believes that small and mid-cap stocks could provide greater value for investors looking for returns over the next 3-5 years, as they are priced for a recession.
With this background in mind, let’s take a look at the 7 most profitable mid-cap stocks to invest in.
A portfolio manager in front of their computer screen, evaluating a variety of mid-cap stocks.
Methodology
To compile our list of the 7 most profitable mid-cap stocks to invest in, we used stock screeners from Finviz and Yahoo Finance. First, we defined mid-cap stocks as those with a market capitalization between $2 billion and $10 billion. Next, we focused on profitability by screening for stocks that had a 5-year EPS growth rate of over 10%. We sorted our results based on market capitalization and picked the top 20 stocks.
From this initial list of 20 profitable mid-cap stocks, we further narrowed our choices to stocks that had positive trailing twelve-month (TTM) net income and stocks that have grown their net income positively over the past 5 years. To ensure the reliability of our findings, we consulted reputable sources such as SeekingAlpha, which provided insights into the net income compound annual growth rate (CAGR) over the past five years, and YCharts, which offered information on TTM net income.
Finally, from this list of mid-cap stocks that met our criteria, we focused on the top 7 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 7 most profitable mid-cap stocks to invest in are ranked below in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.
Why do we care about what hedge funds do? 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).
7 Most Profitable Mid-Cap Stocks To Invest In
7. Dayforce Inc (NYSE:DAY)
TTM Net Income: $47.1 Million
5-Year Net Income CAGR: 19.17%
Market Capitalization: $9.86 Billion
Number of Hedge Fund Holders: 23
Dayforce Inc (NYSE:DAY) is a global human capital management (HCM) software company that provides human resources software and services. The company’s flagship cloud HCM platform, Dayforce, integrates various HR functions, including payroll, workforce management, benefits administration, and talent management capabilities. The Dayforce HCM platform is designed to streamline HR processes for businesses, helping them manage their workforce efficiently.
The company is actively enhancing its position in the human capital management (HCM) sector through a series of strategic initiatives and product innovations. The company has differentiated itself as an all-in-one global platform that simplifies HR processes with a comprehensive suite powered by artificial intelligence (AI). Dayforce Inc’s (NYSE:DAY) recent achievements include reaching a significant milestone of $4 billion loaded into its Dayforce Wallet, which is expected to double its revenue this year, making it the fastest-growing product within the company.
In addition to this, Dayforce Inc (NYSE:DAY) is making good progress in significant projects like payroll modernization for the Canadian government, which aims to improve accuracy and timeliness in employee payments while also enhancing employee engagement. The company has secured notable contracts across various industries, including partnerships with a global agri-business and a family of hospitality brands in the UK.
The company is also continuously introducing exciting innovations like the Dayforce Skills Engine, which leverages AI to optimize workforce management and talent development.
In the second quarter of 2024, Dayforce Inc (NYSE:DAY) reported total revenue of $423.3 million, reflecting a 15.7% increase compared to the previous year. The company’s recurring revenue reached $321.6 million, marking a 19.9% year-over-year growth. For the first half of 2024, net cash from operating activities was $108.3 million, up from $93.0 million in the same period last year, while free cash flow also improved to $53.9 million from $36.5 million.
DAY ranks among the most profitable stocks to invest in. Over the past five years, the company has seen its net income grow at a compound annual growth rate (CAGR) of 19.17%, with revenue increasing at a CAGR of 16.12%. This growth underscores Dayforce Inc’s (NYSE:DAY) strong market position and its ability to expand its customer base while enhancing its product offerings in the competitive human capital management sector.
According to Insider Monkey’s Q2 database of over 900 hedge funds, 23 hedge funds held stakes in Dayforce Inc (NYSE:DAY). Baron Funds stated the following regarding Dayforce Inc (NYSE:DAY) in its first quarter 2024 investor letter:
“Humancapital management (HCM) software leader Dayforce Inc (NYSE:DAY) fell on concerns that slowing employment growth will reduce the company’s growth rate in the near term. Although Dayforce has some direct exposure to employment levels, it is also benefiting from powerful secular trends around the modernization of HCM software and growing adoption of SaaS.”
6. Primerica Inc. (NYSE:PRI)
TTM Net Income: $443.07 Million
5-Year Net Income CAGR: 4.93%
Market Capitalization: $9.3 Billion
Number of Hedge Fund Holders: 25
Primerica Inc. (NYSE:PRI) is a financial services company that focuses on serving middle-income families in the United States and Canada. The company offers a range of products including term life insurance, mutual funds, annuities and other financial products. It also offers various types of insurance such as auto and home coverage. Primerica operates using a multi-level marketing model, empowering representatives to sell its products while promoting financial literacy within their communities.
The company is actively enhancing its growth strategy by focusing on expanding its sales force and increasing the demand for its financial products. In the second quarter of 2024, Primerica Inc. (NYSE:PRI) reported a 12% increase in recruitment. The company also saw a 14% increase in licensing, with more than 14,000 representatives obtaining new life licenses. This helped drive the company’s sales force to record 145,789 representatives
In the second quarter of 2024, Primerica issued over 100,000 new term life policies, adding $33 billion in coverage for middle-income families, which reflects the company’s strong commitment to serving this demographic.
Primerica Inc. (NYSE:PRI) saw impressive growth in its investment and savings products segment, with sales reaching $3.1 billion in Q2 2024, reflecting an increase of 29% year-over-year. Investment and savings product client asset values increased 15%, ending the quarter at a record $105 billion.
During the second quarter, the company decided to exit the senior health market due to profitability challenges. However, Primerica Inc.’s (NYSE:PRI) focus on core offerings and innovative recruitment strategies positions it well for sustained growth in the competitive financial services landscape.
Over the past 5 years, Primerica Inc. (NYSE:PRI) has grown its net income at a compound annual growth rate (CAGR) of 4.93%, while its levered free cash flow has increased at a CAGR of 10% during the same period.
According to Insider Monkey’s database, 25 hedge funds held stakes in Primerica Inc. (NYSE:PRI) in the second quarter of 2024. This brings PRI to the 6th spot on our list of the most profitable mid-cap stocks to invest in.
5. Universal Display Corporation (NASDAQ:OLED)
TTM Net Income: $222.68 Million
5-Year Net Income CAGR: 13.74%
Market Capitalization: $9.66 Billion
Number of Hedge Fund Holders: 27
Universal Display Corporation (NASDAQ:OLED) is a leading company in the development and commercialization of organic light-emitting diode (OLED) technologies and materials. OLED technology is essential for creating energy-efficient displays and solid-state lighting. The company’s proprietary UniversalPHOLED technology and materials enable manufacturers to produce high-quality OLEDs used in a wide range of products, including smartphones, TVs, and smartwatches. The company partners with major consumer electronics brands like Samsung and LG, helping to drive innovation in display and lighting technologies.
The company is strategically advancing its position in the OLED market by capitalizing on the growing adoption of OLED technology across various consumer devices. The company reported a significant uptick in the OLED IT market, with major original equipment manufacturers (OEMs) like Apple and Microsoft launching their first OLED tablets. This trend is expected to drive OLED tablet panel shipments to triple year-over-year, reaching 14.8 million units in 2024. Additionally, Universal Display Corporation (NASDAQ:OLED) is focused on enhancing its phosphorescent materials portfolio, with ongoing development of blue emissive materials that promise higher efficiency and performance for OLED applications.
The company’s recent innovations, such as the organic vapor jet printed (OVJP) technology, highlight its commitment to cost-effective manufacturing of high-resolution OLED panels. As demand for energy-efficient solutions continues to rise, Universal Display Corporation’s (NASDAQ:OLED) advancements in OLED technology position it well for sustained growth in the rapidly expanding market.
In the second quarter of 2024, Universal Display Corporation (NASDAQ:OLED) reported revenue of $159 million, an 8% increase year-over-year. Material sales contributed significantly to this growth, reaching $95.4 million compared to $77.1 million in Q2 2023, driven by strong demand for emitter materials. The company’s net income also rose to $52.3 million, or $1.10 per diluted share, up from $49.7 million, or $1.04 per diluted share, in Q2 2023. The company ended the quarter with approximately $879 million in cash and investments, showcasing its strong financial position.
In the Q2 2024 earnings call, management shared that the company’s Board of Directors declared a quarterly dividend of $0.40. This decision reflects the company’s ongoing commitment to returning capital to shareholders while maintaining positive cash flow generation. Overall, these results highlight Universal Display Corporation’s (NASDAQ:OLED) solid performance and its strategic focus on meeting growing market demands in the OLED industry.
As of the second quarter of 2024, Universal Display Corporation (NASDAQ:OLED) was held by 27 hedge funds, according to Insider Monkey’s database. OLED ranks among the top 5 on our list of the 7 most profitable mid-cap stocks to invest in.
Universal Display Corporation (NASDAQ:OLED) has achieved impressive growth over the last 5 years, with its revenue increasing at an average rate of 12% each year. Meanwhile, the company’s net income has also risen, growing at an average rate of 13.74% during the same period.
TimesSquare Capital Management stated the following regarding Universal Display Corporation (NASDAQ:OLED) in its fourth quarter 2023 investor letter:
“New to the portfolio this quarter is Universal Display Corporation (NASDAQ:OLED), a developer of organic light emitting diode technologies for use in display and solid-state lighting applications. The company stands to benefit from a recovery in the end-markets it serves including smartphones, televisions, notebooks, and tablets.”
4. Bruker Corporation (NASDAQ:BRKR)
TTM Net Income: $352.1 Million
5-Year Net Income CAGR: 13.27%
Market Capitalization: $9.64 Billion
Number of Hedge Fund Holders: 32
Bruker Corporation (NASDAQ:BRKR) is an American manufacturer of high-performance scientific instruments used for molecular and materials research, as well as industrial analysis. The company develops scientific instruments and high-value analytical and diagnostic solutions that enable detailed exploration at molecular, cellular, and microscopic levels, supporting various fields such as life sciences, pharmaceuticals, and industrial applications. The company drives innovation and productivity in areas like microscopy, nanoanalysis, and clinical research.
The company is actively enhancing its market position through its dual strategy of Project Accelerate 2.0 focused on portfolio transformation and operational excellence. Bruker Corporation (NASDAQ:BRKR) is capitalizing on robust demand for its scientific instruments and life science solutions. Additionally, the company continues to benefit from strong orders in semiconductor metrology, which supports high-performance computing trends related to AI.
The recent strategic acquisitions of Chemspeed, NanoString, and ELITech are pivotal to the company’s growth strategy, allowing for expansion into spatial biology, molecular diagnostics, and laboratory automation and digitization.
Bruker Corporation (NASDAQ:BRKR) reported revenues of $800.7 million for the second quarter of 2024, reflecting a 17.4% increase compared to $681.9 million in the same quarter last year. Acquisitions contributed 11.1% to the overall revenue growth.
Over the past five years, Bruker Corporation (NASDAQ:BRKR) has grown its revenue at a compound annual growth rate (CAGR) of 9.61%, while its net income has increased at a CAGR of 13.27% during the same period. Over the past 5 years, the company has also grown its levered free cash flow at a CAGR of more than 22%. BRKR is one of the most profitable mid-cap stocks to invest in.
According to Insider Monkey’s Q2 database of over 900 hedge funds, 32 hedge funds held stakes in Bruker Corporation (NASDAQ:BRKR). The London Company stated the following regarding Bruker Corporation (NASDAQ:BRKR) in its “The London Company SMID Cap Strategy” second quarter 2024 investor letter:
“Bruker Corporation (NASDAQ:BRKR) – BRKR designs and manufactures advanced scientific instruments as well as analytical and diagnostic solutions for a number of differentiated end markets in the life sciences arena. Its solutions enable its customers to explore life and materials at microscopic, molecular, and cellular levels. With a global presence and a focus on life sciences, it benefits from long-term drivers like proteomics research. BRKR derives its competitive moat from its highly innovative instruments that push the cutting edge of science, enabling strong pricing power and market leadership. BRKR’s management team has an excellent track record of capital allocation and delivering on their promises that help create shareholder value. Over time, BRKR has reduced its reliance on government/academic customers, diversified away from Europe, increased growth, and expanded margins meaningfully. BRKR also possesses many characteristics we look for in a company, including a strong balance sheet, high ROIC (>20%), improving margin (close to 20%), and high inside ownership. BRKR is also owned in our Mid Cap portfolio.”
3. Encompass Health Corporation (NYSE:EHC)
TTM Net Income: $399.5 Million
5-Year Net Income CAGR: 5.19%
Market Capitalization: $9.41 Billion
Number of Hedge Fund Holders: 39
Encompass Health Corporation (NYSE:EHC) is the largest operator of rehabilitation hospitals in the United States, with over 160 facilities across 38 states and Puerto Rico. The company specializes in providing high-quality, compassionate rehabilitative care for patients recovering from serious injuries or illnesses. The corporation offers a comprehensive care model that includes 24/7 nursing support, independent physician oversight, multi-disciplinary therapy, and extensive clinical support services. Encompass Health Corporation (NYSE:EHC) utilizes advanced technology and innovative treatment methods to enhance recovery.
The corporation has implemented an aggressive growth strategy to expand its reach and enhance its service offerings. In the second quarter of 2024, Encompass Health Corporation (NYSE:EHC) added 194 beds across several new and existing facilities. In July, Encompass expanded into a new state as it opened a 50-bed hospital in Johnston, Rhode Island. By the end of the year, the company aims to open two new hospitals with a total of 100 beds and add around 30 more beds to its existing facilities.
Encompass Health Corporation (NYSE:EHC), the company is also enhancing its joint venture with Piedmont Healthcare in Georgia, which now includes six operational hospitals and plans for further development.
Additionally, the corporation is undertaking a significant upgrade to its enterprise resource planning (ERP) system by transitioning to Oracle Fusion. This move aims to create a more efficient, cloud-based infrastructure that supports future growth and operational improvements.
Encompass Health Corporation (NYSE:EHC) reported a strong financial performance in the second quarter, with revenue rising by 9.6% year-over-year. This increase was driven by a 6.7% growth in discharges, including a notable 4.8% growth in same-store discharges. This marks the eighth consecutive quarter where same-store discharge growth has exceeded 4%, highlighting the company’s consistent operational strength. Additionally, adjusted EBITDA grew by 8.9%, reflecting effective management and operational efficiency.
The company also saw a significant increase in adjusted free cash flow, which rose by 14.7% year-over-year to reach $142.5 million for Q2 2024. The year-to-date total for free cash flow reached $310.1 million, demonstrating the corporation’s ability to generate strong cash flow while supporting its growth initiatives.
Over the past 5 years, Encompass Health Corporation (NYSE:EHC) has grown its net income at a compound annual growth rate (CAGR) of 5.19%.
According to Insider Monkey’s database, 39 hedge funds held stakes in Encompass Health Corporation (NYSE:EHC) in the second quarter of 2024. EHC ranks among the top 3 on our list of the most profitable mid-cap stocks to invest in.
2. Woodward Inc. (NASDAQ:WWD)
TTM Net Income: $372.33 Million
5-Year Net Income CAGR: 6.85%
Market Capitalization: $9.52 Billion
Number of Hedge Fund Holders: 41
Woodward Inc. (NASDAQ:WWD) is an American company specializing in the design, manufacture, and service of control systems and components for aerospace and industrial markets. The company provides innovative solutions for aircraft engines, industrial engines, turbines, and power generation equipment. Its advanced technologies include fluid, combustion, electrical, propulsion, and motion control systems, which are crucial for optimizing efficiency in various applications.
The company is strategically positioning itself for future growth through significant investments in research and development, particularly in the aerospace sector. Recently, Woodward Inc. (NASDAQ:WWD) was selected by Boeing to design advanced hydraulic controls for the X 66. This project is a collaboration between Boeing and NASA aimed at innovating a low-drag configuration to reduce fuel burn and emissions in single-aisle aircraft design.
Additionally, Woodward Inc. (NASDAQ:WWD) is investing in the development of alternative fuel technologies, particularly through its focus on Power-to-X (P2X) fuels like hydrogen, ammonia, and methanol. These fuels are being explored for various applications as part of the global effort to meet ambitious carbon reduction targets in aviation and transportation. To support this initiative, the company has established a P2X Research Center in Stuttgart, Germany, where it is testing components compatible with hydrogen for the Airbus Zero-E hydrogen-powered aircraft demonstrator. The company is looking to pioneer an advanced fuel control system for the next generation of aircraft engines.
In the third quarter of 2024, Woodward Inc. (NASDAQ:WWD) reported net sales of $848 million, up from $801 million, representing a 6% increase. The company’s net earnings also rose to $102 million, or $1.63 per share, compared to $85 million, or $1.37 per share in the same period last year. For the first three quarters of fiscal 2024, the company generated free cash flow of $225 million, a significant increase from $98 million during the same period last year.
Over the past 5 years, Woodward Inc. (NASDAQ:WWD) has grown its net income at a compound annual growth rate (CAGR) of 6.85%, while its levered free cash flow has increased at a CAGR of 13.44% during the same period. WWD ranks second on our list of the 7 most profitable mid-cap stocks to invest in.
As of the second quarter of 2024, WWD was held by 41 hedge funds, according to Insider Monkey’s database.
1. Match Group Inc. (NASDAQ:MTCH)
TTM Net Income: $649.9 Million
5-Year Net Income CAGR: 3.79%
Market Capitalization: $9.42 Billion
Number of Hedge Fund Holders: 43
Match Group Inc. (NASDAQ:MTCH) is an American internet and technology company that owns and operates a global portfolio of popular online dating services including Tinder, Hinge, Match.com, Meetic, OkCupid, Plenty of Fish, and other dating global brands. With services available in over 40 languages, the company caters to diverse markets worldwide.
The company has announced its decision to exit live streaming services in its dating apps, including Plenty of Fish and Hyperconnect’s Hakuna app. This move is part of a strategy to optimize investments and focus on areas where the company has a competitive advantage. Although this decision will result in an annual revenue loss of approximately $60 million, Match Group Inc. (NASDAQ:MTCH) believes it will enhance margins and support growth in the long term.
To strengthen its key growth apps like Tinder, Hinge, and Azar, Match Group Inc. (NASDAQ:MTCH) plans to reassign talent from Hyperconnect that specializes in artificial intelligence (AI). The company is confident that leveraging AI will improve the overall dating experience and create new opportunities for innovation.
In the Q2 2024 earnings call, management shared that over the next year, Tinder plans to integrate AI to enhance the dating experience, aiming to create a more exciting and innovative platform. The company is testing new tools to improve authenticity. Tinder has already launched features like the Photo Selector to make choosing profile pictures easier. Meanwhile, Hinge is experiencing impressive growth, with direct revenue increasing nearly 50% year-over-year in Q2 2024. New features such as Your Turn Limits and AI-enabled photo tools are enhancing user interactions and helping daters connect more effectively.
Match Group Inc. (NASDAQ:MTCH) reported a total revenue of $864 million for the second quarter of 2024, which is a 4% increase compared to Q2 2023. Revenue per payer rose by 9%, although the number of payers decreased by 5% year-over-year. Tinder generated $480 million in direct revenue, reflecting a 1% growth. Hinge saw impressive growth with direct revenue reaching $134 million, up 48% from last year. Additionally, Hinge’s payer count increased by 24% to nearly 1.5 million, showcasing its strong performance.
Over the last five years, the company has achieved a compound annual growth rate (CAGR) of 3.79% in net income. Match Group Inc. (NASDAQ:MTCH) ranks among the most profitable stocks. Analysts are also bullish on MTCH. The 12-month median price target of $44.50 set by analysts indicates a potential upside of 20% from the current stock price.
According to Insider Monkey’s Q2 database of over 900 hedge funds, 43 hedge funds held stakes in Match Group Inc. (NASDAQ:MTCH) in the second quarter of 2024.
Overall, MTCH ranks first among the 7 most profitable mid-cap stocks to invest in. While we acknowledge the potential of Match Group Inc. (NASDAQ:MTCH), 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 MTCH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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