We recently published a list of 10 Worst Performing Mid Cap Stocks to Buy According to Analysts. In this article, we are going to take a look at where Tidewater Inc. (NYSE:TDW) stands against other worst performing mid cap stocks to buy according to analysts.
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.
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).
A fleet of offshore supply vessels and tugs carrying materials to an oilrig in the distance.
Tidewater Inc. (NYSE:TDW)
6-Month Performance as of February 26: -47.06%
Upside Potential as of February 26: 60.95%
Number of Hedge Fund Holders: 33
Tidewater Inc. (NYSE:TDW) provides offshore support vessels and marine services to the energy industry and facilitates critical operations from oil and gas exploration to wind farm development. With a fleet of specialized vessels, it supports a range of activities, which include transportation, construction, and maintenance. It serves major energy companies and related industries worldwide.
Its Offshore Support Vessel (OSV) operations, primarily Platform Supply Vessels (PSVs) and Anchor Handling Tug Supply (AHTS) vessels, drive its revenue. In Q3 2024, average day rates rose 5.4% to $22,275, exceeding expectations. This helped generate $67 million in free cash flow. Despite slight utilization dips, leading-edge day rates climbed. Larger Platform Supply Vessels saw a 6% increase to over $37,000, and medium-class Platform Supply Vessels jumped 26% to over $35,000. Smaller Anchor Handling Tug Supply vessels also saw double-digit rate increases.
The company is prioritizing short-term contracts to maximize day rate potential, even with potential near-term utilization fluctuations. It’s actively repurchasing shares, spending $111 million in the past four quarters to reduce share count, and plans to increase this rate. Tidewater Inc. (NYSE:TDW) is also open to mergers and acquisitions, but current market uncertainty has widened the bid and ask spread.
Praetorian Capital anticipates a significant resurgence in offshore drilling, which positions this company for substantial long-term profits as the decade-long bear market concludes. It stated the following regarding Tidewater Inc. (NYSE:TDW) 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 (VAL – USA), Tidewater Inc. (NYSE:TDW) 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.
Why did shale encroach so effectively against offshore and steal so much market share?? I’d like to point you to three factors. To start with, the Deepwater Horizon accident gave the industry a black eye, at a time when a burgeoning ESG movement was taking hold—this led oil executives to shun offshore oil production, even if the returns were superior to shale. Secondly, shale executives overpromised in terms of the economics of shale. We can debate if this overpromise was malicious or just oil industry optimism, but that discussion can be saved for a different time. However, the net effect of this overpromise led E&P executives to believe that shale would have better returns on capital than offshore, particularly as the production could be ramped up and down to take advantage of fluctuations in the oil price—this diverted capital from offshore assets, starving them of capital spending. Finally, there was an odd belief, even amongst many energy executives, that the energy transition would lead to peak oil consumption during the 2020s, implying that long-cycle energy projects, like offshore, were unnecessary…” (Click here to read the full text)
Overall, TDW ranks 5th on our list of worst performing mid cap stocks to buy according to analysts. While we acknowledge the growth potential of TDW, 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 TDW 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.