Mid-cap stocks often strike the right balance between having proven business models and market opportunities that can support $100 billion corporations. However, they face intense competition from scaled industry giants and can be disrupted by new innovative players vying for a slice of the pie.
This is precisely where StockStory comes in - we do the heavy lifting to identify companies with solid fundamentals so you can invest with confidence. Keeping that in mind, here are three mid-cap stocks to avoid and some other investments you should consider instead.
Burlington (BURL)
Market Cap: $17.09 billion
Founded in 1972 as a discount coat and outerwear retailer, Burlington Stores (NYSE:BURL) is now an off-price retailer that has broadened into general apparel, footwear, and home goods.
Why Are We Cautious About BURL?
- Annual sales growth of 8% over the last six years lagged behind its consumer retail peers as its large revenue base made it difficult to generate incremental demand
- Free cash flow margin shrank by 6.5 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
- Underwhelming 9% return on capital reflects management’s difficulties in finding profitable growth opportunities
Burlington is trading at $274.98 per share, or 27.2x forward P/E. If you’re considering BURL for your portfolio, see our FREE research report to learn more.
Jacobs Solutions (J)
Market Cap: $18.92 billion
With a workforce of approximately 45,000 professionals tackling complex challenges from water scarcity to cybersecurity, Jacobs Solutions (NYSE:J) provides engineering, consulting, and technical services focused on infrastructure, sustainability, and advanced technology solutions.
Why Should You Dump J?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.5% annually over the last five years
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Jacobs Solutions’s stock price of $158 implies a valuation ratio of 23.1x forward P/E. Read our free research report to see why you should think twice about including J in your portfolio.
Interpublic Group (IPG)
Market Cap: $9.65 billion
With a history dating back to 1902 and roots in the McCann-Erickson agency, Interpublic Group (NYSE:IPG) is a marketing and communications holding company that owns agencies specializing in advertising, media buying, public relations, and digital marketing services.
Why Are We Out on IPG?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- 17.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $26.35 per share, Interpublic Group trades at 8.9x forward P/E. Dive into our free research report to see why there are better opportunities than IPG.
Stocks We Like More
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