If you are looking for growth at a reasonable valuation, the following 10 mid cap stocks are worth keeping an eye on. All of these stocks have reasonable earnings and book multiples, and have demonstrated an EPS growth among the highest in its industry.
As you look through this list, remember that while growth and value are talked about as two different sides of the coin, they are not mutually exclusive. The difficulty lies in getting a good estimation of the future growth and for that reason, the PEG ratio is one of the least useful indicators for investing. More often than not, a low PEG just indicates that analysts might have an inflated expectation of future growth, which is not shared by investors. For this reason, I prefer to look at the EPS growth in the past 5 years to see how the company has performed in the recent past. While still not a guarantee, the recent historical performance can be a better indicator of whether the company has a good sustainable growth strategy. Of course, everything else needs to be checked out as well and to cut risk even further, you should convince yourself that the value does exist.
Synnex Corporation (SNX)
SYNNEX is an IT distributor and BPO service provider in business since 1980. Both revenues and earnings have seen steady growth in the past and the company seems to be selling at a great earnings multiple discount to its peers. The stock could deliver a solid, even if not spectacular, returns this year.
Protective Care (PL)
Alabama based life insurance company has $3.69 B cash on the books with $2.7 B in market value. It also pays a 2.08% dividend yield. There is also $2.53 B in debt on the books. Valuing an insurance company is a different animal and we have had some spectacular successes in the past in our portfolio so while the rewards can be there, make sure you understand the key balance sheet line items before you decide to invest.
CACI International (CACI)
CACI International provides IT services to Federal government and commercial markets. Its services include intelligence, surveillance, and reconnaissance solutions; command and control solutions to support military, homeland security, law enforcement, border security, emergency response, and disaster relief missions. For a service company a P/B ratio of 1.12 is attractive. While the recent fiscal cliff deal avoided cutting defense spending, there is a good possibility that it will be back on the table in the near future and this presents a definite risk for the stock and quite possibly the valuation might get more attractive in the next few months.
AGCO Corporation (AGCO)
I have been quite bullish on the agricultural stocks and have looked deep and hard at AGCO in the past. Valuations remain attractive for this agriculture equipment company even after 30% return since May 2012. The agriculture case is mostly macro-economic.
EZCORP Inc. (EZPW)
EZCORP runs a network of over 1200 pawn shops and cash advance centers in U.S., Canada and Mexico. Business has been brisk as the EPS growth shows, although a recovering economy may cause a decline in demand for its services. The stock is certainly cheap and at this level the downside should be very little. Longer term investors should find this a good time to buy although the wait to profit may be a little uncertain.
Cash America International, Inc. (CSH)
CSH is another pawn shop/payday advance lender that has seen great last few years. While the macro case remains the same as EZPW, the valuations are perhaps a little richer. I would avoid this stock despite what the PEG ratio says.
Kulicke and Soffa Industries, Inc. (KLIC)
Kulicke and Soffa Industries, Inc. designs, manufactures, and sells capital equipment and expendable tools to assemble semiconductor devices, including integrated circuits, discrete devices, light-emitting diodes, and power modules. As with most semiconductor stocks, KLIC is at depressed levels. The P/E ratio of 5.12 becomes even more ridiculous considering close to half of the $808 million market value of the company is made up by cold tangible cash with zero debt to worry about. Semiconductor cycle remains a question mark. The financial strength of the company is not in question and neither is its undervaluation. The only question is if you are willing to wait for a couple of years to see meaningful appreciation in the stock as the semiconductor cycle plays out.
Helen of Troy Limited (HELE)
While $349 m in debt might be of concern, the company has sufficient cash flow to manage it. This consumer products company has grown revenues and earnings at an impressive clip. It also sells for half the industry price to earnings multiple. Its brand name toiletries and other mundane home products are less likely to be impacted by inflation. Watch out for the excessive CEO pay and recent history or insider sales.
Select Medical Holdings (SEM)
Select Medical Holdings Corporation, through its subsidiary, Select Medical Corporation, operates specialty hospitals and outpatient rehabilitation clinics in the United States. Revenues and specifically earnings have been growing at a rapid clip but the debt is high. The stock is being snapped up by institutions. At some point, the baby boomer demography will become a major force in changing the economic climate of the country and the stock should benefit. However the high debt levels give me a pause as to how the growth can be funded.
Assurant Inc (AIZ)
Incredibly cheap insurer, Assurant operates in four segments: Assurant Solutions, Assurant Specialty Property, Assurant Health, and Assurant Employee Benefits. In addition to the attractive valuations, the stock pays a 1.87% dividend. The company was significantly affected by the super storm Sandy and its rates are getting scrutinized by the state regulators. However, improving housing market will help Assurant's business and this may be an attractive time to pick this stock up.
The aforementioned stocks are all statistically appetizing, but I recommend that every investor to assess their individual risk tolerance and invest accordingly. Mid cap stocks are inherently more risky than their large cap siblings, but also offer a possible higher return. The stocks mentioned above are all viable options for 2013, and securities that you must pay close attention to.