As the year unfolds, mega-cap stocks have been basking in the limelight, overshadowing smaller counterparts. To illustrate this point, the Russell 2000 Index is down more than 2% year-to-date, while the S&P 500 index is ticking in the green at over 15%. Hence, the divergence sets the stage for a rally in mid-cap stocks.
Despite the market’s jittery sentiment over economic health and consumer spending, mid-cap stocks emerge as potential frontrunners. Their trading at a discount to large-cap stocks adds to their appeal. Though the market faces many headwinds, the historical trend of a fourth-quarter rally positions these mid-cap stocks for potential robust gains as we head into next year.
Sanmina (SANM)
Sanmina (NASDAQ:SANM) is a top player in technology manufacturing and integrated solutions, performing incredibly well in fiscal 2023. The company’s revenue surged by 13% to a whopping $8.9 billion, a testament to its successful penetration across diverse industrial, medical, defense, and automotive industries.
In terms of profitability, Sanmina’s non-GAAP operating margin has expanded remarkably by 80 basis points to reach 5.8%, demonstrating its operational efficiency. Moreover, the company has achieved a significant 34% year-over-year increase in non-GAAP earnings per share.
Despite experiencing a 7% drop in fourth-quarter sales, primarily in the communications sector, the company maintained a steady non-GAAP operating margin. This resilience is further reflected in its robust balance sheet, with $657 million in cash and cash equivalents. It underscores Sanmina’s powerful financial health and potential for continued growth in the technology sphere.
Alaska Air (ALK)
Alaska Air (NYSE:ALK) is one of the top American air services, which stands out for its affordable airfare while connecting cities across the U.S. and other North American countries. Though multiple headwinds have weighed down its results, its long-term position remains intact.
In a bold move to enhance customer experience, Alaska Airlines has committed a substantial $2.5 billion for improvements in upgrading hub airport facilities and slashing transit times, with an ambitious target of a 5-minute lobby experience.
This initiative is not just about customer convenience; it’s designed to elevate operational efficiency, curtail costs, and bolster customer loyalty. Additionally, Alaska Air’s strategic shift to an all-Boeing fleet is poised to further enhance its operational efficiency and profitability.
Reflecting on its operational prowess, Alaska Air has shown robust resilience, evidenced by industry-leading completion rates and a powerful profitability profile. Year-over-year profitability metrics remain excellent based on its 5-year historical metrics. Moreover, it trades at just 0.4 times forward sales estimates, almost 70% lower than the sector median.
InterDigital (IDCC)
InterDigital (NASDAQ:IDCC) is a trailblazer in wireless and visual technology research and development, operating mainly through licensing and innovation of its extensive patent portfolio. With InterDigital boasting around 28,800 patents and patent applications, IDCC’s repertoire includes powerful innovations in video coding, wireless communication, and various entertainment technologies.
IDCC’s recent financial performance reflects a company offering upward solid momentum. The third quarter results were awe-inspiring, with a staggering 116% surge in net income and a 22% year-over-year increase in total sales.
Perhaps the highlight was its EPS, reaching $1.83 and surpassing estimates by an extraordinary 105.62%. This financial success is partly fueled by a growing portfolio of licensing agreements for its HEVC compression technology. A notable instance is the recent agreement with Lenovo to use this smartphone technology. Also, the company has expanded its licensing reach with a significant agreement with Alps Alpine, a leading electronic devices producer, which solidifies its foothold in the HEVC patent landscape.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
