We recently compiled a list of the 11 Best Mid-Cap Value Stocks to Buy According to Analysts. In this article, we are going to take a look at where HNI Corporation (NYSE:HNI) stands against the other mid-cap value stocks.
Value investing remains a time-tested strategy that provides both stability and long-term growth, particularly during periods of market volatility and elevated stock valuations. Simply put, value investing involves identifying stocks that trade at a discount to their real value or relative to their peers based on financial metrics while possessing strong upside potential. The concept was first introduced by Benjamin Graham and David Dodd, who framed it as the “margin of safety” rather than simply value investing. Their philosophy emphasized that investors should never pay more than what a company is intrinsically worth, as determined by fundamental analysis. This margin of safety serves as a protective buffer in case the market does not perform as anticipated.
A key advocate of value investing, Warren Buffett, famously stated that the approach is about “finding an outstanding company at a sensible price” rather than settling for an average company at a bargain. This strategy relies heavily on fundamental analysis to assess a company’s true worth. Investors evaluate key metrics such as the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and discounted cash flow (DCF) analysis to determine a company’s intrinsic value. As Buffett wisely noted, “Never invest in a business you don’t understand,” highlighting the importance of thorough research in selecting value stocks.
At the Delivering Alpha 2024 Investor Summit in November 2024, David Einhorn of Greenlight Capital noted that while the market is expensive, it’s not necessarily the wrong time to invest. He pointed out that many companies trade at historically high multiples, but overvaluation alone doesn’t signal an imminent downturn. Asset prices can stay mispriced for long periods, and he saw no immediate catalyst for a major market correction, though he cautioned that it may not be the best entry point for long-term investors.
Similarly, portfolio managers at the Heartland Mid Cap Value Fund, in their Q4 2024 Investor Letter, cautioned against investing in stocks with excessively high valuations, citing significant risks in the current environment. They expressed reluctance to chase speculative stocks or those with inflated valuations driven by temporary profit spikes, as these could quickly reverse if market conditions change. While acknowledging that their core holdings underperformed in the fourth quarter, they remained confident in their long-term potential. They believe the prevailing market trends of diminished risk aversion and extreme valuation growth are unsustainable. Rather than following speculative trends, they advocate for disciplined value investing, which they argue will yield better returns over time.
Navigating an unpredictable and choppy market makes achieving significant gains more challenging, and the higher a stock’s valuation, the more vulnerable it becomes to corrections. This is where value investing plays a crucial role. While investing in undervalued stocks may seem counterintuitive in a rising market, history has shown that these stocks often outperform when the market eventually recognizes their true worth. By staying patient and disciplined, value investors position themselves to capitalize on long-term opportunities while minimizing downside risks.
Our Methodology
To identify the 11 Best Mid-Cap Value Stocks to Buy According to Analysts, we started by screening U.S.-listed companies with a market capitalization between $2 billion and $10 billion. We then applied three key value criteria: a forward price-to-earnings (P/E) ratio of 15 or lower, which must also be below the trailing P/E; positive expected EPS growth for the upcoming financial year; and a dividend yield of at least 1%. From this list, we further selected stocks with a projected upside of at least 20%. We then ranked the top 11 stocks based on their potential upside, placing those with the highest expected gains at the top. Additionally, we also included data on hedge fund holdings in these companies as of Q4 2024 to provide further insight into investor interest.
Note: All pricing data is as of market close on March 6.
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).
A worker in a warehouse packaging a modern storage furniture.
HNI Corporation (NYSE:HNI)
Fwd. P/E: 13.0
Potential Upside: 39%
Number of Hedge Fund Holders: 12
HNI Corporation (NYSE:HNI) is a manufacturer of office furniture and hearth products. The company’s portfolio includes well-known brands like HON, Allsteel, and Kimball, offering a diverse range of products for both commercial and residential markets.
HNI Corporation (NYSE:HNI)’s diverse product offerings, strong brand portfolio, the scale and capability of its manufacturing, and strong distribution network provide a solid foundation for growth. It boasts of average free cash flow per share continuously exceeding adjusted EPS over the last two decades. It has also paid dividends for the last 68 years. That said, in recent quarters, the company has seen headwinds in its Residential Building Products segment due to challenging housing market. Despite this, it posted a 15% year-over-year growth in its EPS for 2024, which was the third straight year of double-digit earnings growth.
While HNI Corporation (NYSE:HNI) expects demand volatility in 2025 due to elevated interest rates, tariff uncertainty and weaker consumer sentiment, it guided for low-to-mid single digit revenue growth in both its segments and a robust double-digit EPS growth in 2025. The company’s progress on its profit transformation plan, incoming synergies from recent acquisitions, and productivity and network optimization would support earnings growth.
Overall HNI ranks 4th on our list of the best mid-cap value stocks to buy according to analysts. While we acknowledge the potential of HNI as an investment, 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 HNI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.