To some, ‘mid-cap value’ is an oxymoron.
After all, it is in the mid-cap space that we often find companies that grow faster than the overall economy, not to mention large caps. To toss in a word like ‘value’ that is typically reserved for stodgy, low growth businesses would seem to be contradictory.
While both assertions can be true, mid-cap value is a popular asset class where investors can find stocks that offer a unique combination of growth and value. In fact, U.S. mid-cap value is presently enjoying an extended run of outperformance.
As measured by the iShares S&P 400 MidCap Value ETF (IJJ), the asset class is actually up slightly year-to-date after outpacing its mid-cap growth counterpart (IJK) by more than 10% in 2021.
In an environment of widespread inflation and rising interest rates, growth and value are harder to come by these days. Stocks that offer both are even more difficult to find. That’s what makes these three mid-cap value stories so compelling.
Is Harley-Davidson a Good Value Stock?
Harley-Davidson, Inc. (NYSE:HOG) gets good mileage in terms of its value characteristics. Shares of the iconic motorcycle company are trading around 9x this year’s earnings estimate. This is a bargain when you consider that analysts are projecting 17% bottom line growth in 2022.
With Harley-Davidson, investors get a company that is generating cash flow of nearly $6 per share when many domestic automakers are seeing negative cash flow. This comes from the underlying strength in the business tied to the early success of management’s strategic transformation.
Harley’s five-year ‘Hardwire’ plan geared towards long-term growth and profitability through a refreshed, on-trend product lineup is gaining momentum. After a weak 2020 performance, sales were up 34% last year and margins much improved. The ‘Rewire’ plan aimed at simplifying operations is also progressing well.
While some have exited the stock due to the planned spinoff of Harley’s high-growth LiveWire electric motorcycle unit, there should still be plenty of growth ahead as new technologies and models help the brand appeal to younger consumers. An inexpensive valuation, rising dividend, and active buyback program should also help keep the Harley engine going.
What Does Vontier Corporation Do?
Vontier Corporation (NYSE:VNT) is a former Fortive division that specializes in technology-led transportation and mobility solutions. Fueling, fleet management, vehicle diagnostics, and even smart city technologies are among the company’s diverse end markets.
The stock has had a rough go of it lately largely because gas station operators have been slow to embrace the recent mandate from credit card processors to install EuroPay, MasterCard, Visa (EMV) technology. The technology, which is intended to reduce fraud at the pumps, uses the ‘chip’ seen on most newer credit cards rather than the old school magnetic strip.
Gas stations that didn’t come on board with the new technology as of last April were supposed to be on the hook for any fraudulent transactions. However, multiple deadline extensions, the lack of technician availability during the pandemic, and outright refusals to invest in the technology have slowed what was expected to be a major revenue boost for Vontier.
In response to the slow EMV uptake, Vontier has been busy finding other revenue sources. Last month it acquired Driivz, a software provider for the EV charging infrastructure and smart energy markets. It also recently wrapped up the acquisition of DRB Systems which specializes in workflow solutions for the car wash industry.
With an expanding roster of growth drivers, the EMV struggles are starting to lend way to a brighter outlook. Management is projecting EPS of $3.05 to $3.15 this year which at the midpoint equates to a cheap 8x valuation.
Is the Capri Holdings Selloff a Buy Opportunity?
Capri Holdings Ltd. (NYSE:CPRI) is a fashion conglomerate consisting of the Michael Kors, Jimmy Choo, and Versace brands. The company sells a mix of designer clothes, shoes, handbags, jewelry, and fragrances at the high end of the price spectrum.
Like others in the apparel industry, Capri is wrestling with supply chain disruptions and higher costs. This recently forced it to raise prices on already expensive items, a move that some are worried will scare away a good portion of its customer base. An uptick in coronavirus cases in China and other parts of Asia where Capri products are made is additional cause for concern.
Despite these headwinds, Capri has the wind at its back coming off a strong fiscal Q3 report that included an upbeat forecast for the remainder of the year. Management raised its guidance for the second time in projecting FY22 EPS of $6.00 on revenue of $5.6 billion.
The company is banking on the continued success of its online shopping outlets which have introduced more customers to its brands and enhanced engagement with existing customers. Celebrity streaming performances, fashion shows, interviews, and other live events have lessened Capri’s dependency on brick and mortar shops.
The near-term challenges have caused a selloff in the stock, which is trading 25% below last month’s peak. Given the exposure to three growing luxury brands, it is a discount that should make investors put Capri shares in the shopping bag.
Originally published on MarketBeat.com
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