5 Must-Buy Mid Caps Set to Beat Earnings Estimates Next Week

Nalak Das

Wall Street had a dream run in 2019 wherein all three major stock indexes, predominantly consisting of large-cap stocks, witnessed best yearly performances in six years. Aside from these three large-cap centric indexes, the S&P 400 Mid Cap Index (SP400) also rallied 24.2% in 2019 and 2.6% in fourth-quarter 2019.

Investment in mid-cap stocks is often recognized as a good portfolio diversification strategy. These stocks combine attractive attributes of both small and large-cap stocks.

Fourth-Quarter at a Glance

A series of impressive economic data shows strong economic activities in the fourth quarter of 2019. Retail sales grew 0.3% in December and November’s retail sales growth rate was revised upward to 0.3% from 0.2% reported earlier. A report from National Retail Federation revealed that holiday retail sales increased 4.1% year over year. Strong retail sales shows higher consumer spending, which generates 70% of GDP.

U.S. housing starts jumped 16.9% in December to a seasonally adjusted annual rate of 1.608 million units, reflecting the highest percentage gain since October 2016. November’s data was revised upward from 1.365 million to 1.375 million units. Recovery of the housing market in 2019 was a major positive for the U.S. economy as the sector constitutes nearly 3.1% of GDP.

U.S. manufacturing rose 0.2% in December. However, excluding motor vehicles and parts, manufacturing production grew 0.5%. Notably, the U.S. manufacturing sector, which suffered a severe setback in 2019 due to the lingering tariff war, contributed 12% to GDP.

Earnings Results of Fourth Quarter So Far

Expectations for fourth-quarter 2019 earnings are far from encouraging at present. However, although corporate earnings growth was negative year over year in the first three quarters, results were far better than initially anticipated.

Total earnings of the S&P 500 Index are anticipated to be down 3.2% from the same period last year on 3.5% higher revenues. As of Jan 20, just 44 S&P 500 members reported fourth-quarter earnings results. Total earnings of these companies are down 3.8% from the same period last year on 3.9% higher revenues. Of the total, 75% surpassed EPS estimates while 70.5% outpaced revenue estimates.

5 Mid-Cap Stocks Poised to Beat Earnings Estimates

Below are five stocks set to beat on earnings next week. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases their chances of a beat. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The chart below shows the price performance of our five picks in the past three months.

MKS Instruments Inc. MKSI provides instruments, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of manufacturing processes worldwide. It operates through two segments, Vacuum and Analysis, and Light and Motion. The Zacks Rank #1 company has an Earnings ESP of +8.41% for fourth-quarter 2019.

MKS Instruments has an expected earnings growth rate of 39.7% for the current year. The Zacks Consensus Estimate for the current year has improved 1% over the last 30 days. The trailing four-quarter positive earnings surprise is 9.6%, on average. MKS Instruments is set to release earnings results on Jan 28, after the closing bell.

Legg Mason Inc. LM provides investment management and related services to company-sponsored mutual funds and other investment vehicles including pension funds, foundations, endowments, sovereign wealth funds, insurance companies, private banks, family offices and individuals. The Zacks Rank #2 company has an Earnings ESP of +1.59% for the third quarter of fiscal 2020 (ended December 2019).

Legg Mason has an expected earnings growth rate of 1.065.8% for the current year (ending March 2020). The Zacks Consensus Estimate for the current year has improved 0.8% over the last 30 days. The trailing four-quarter positive earnings surprise is 13.1%, on average. Legg Mason is set to release earnings results on Jan 29, after the closing bell.

Murphy Oil Corp. MUR operates as an oil and gas exploration and production company in the United States, Canada, Malaysia and internationally. It explores and produces crude oil, natural gas, and natural gas liquids. The Zacks Rank #1 company has an Earnings ESP of +7.76% for fourth-quarter 2019.

Murphy Oil has an expected earnings growth rate of 11.9% for the current year. The Zacks Consensus Estimate for the current year has improved 46.4% over the last 30 days. The last four-quarter positive earnings surprise is 37.4%, on average. Murphy Oil is set to release earnings results on Jan 30, before the opening bell.

M.D.C. Holdings Inc. MDC is engaged in homebuilding and financial service businesses. Its homebuilding operations include purchasing finished lots or developing lots for the construction and sale primarily of single-family detached homes to first-time and first-time move-up homebuyers. The Zacks Rank #2 company has an Earnings ESP of +2.42% for fourth-quarter 2019.

M.D.C. Holdings has an expected earnings growth rate of 18.5% for the current year. The Zacks Consensus Estimate for the current year has improved 0.7% over the last 30 days. The positive earnings surprise for the trailing four quarters is 1.3%, on average. M.D.C. Holdings is set to release earnings results on Jan 30, before the opening bell.

WESCO International Inc. WCC distributes electrical, industrial, and communications maintenance, repair and operating and original equipment manufacturers products and construction materials in North America and internationally. The company has an Earnings ESP of +2.35% for fourth-quarter 2019.

WESCO has an expected earnings growth rate of 4.1% for the current year. The Zacks Consensus Estimate for the current year has improved 0.7% over the last 30 days. The trailing four-quarter positive earnings surprise is 1%, on average. WESCO is set to release earnings results on Jan 30, before the opening bell.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>