Go Off The Beaten Path With Mid-Cap Stocks

You’re probably hearing a lot – much of it malarky – about how to position your investment portfolio in an age of tariffs and trade wars.

One piece of advice you may hear, which at least makes some sense, is that mid-capitalization stocks are less dependent on foreign suppliers and foreign markets than large companies are. I think in general that’s true, but of course what matters is a company’s specific situation.

I define mid-caps as stocks with a market value between $1 billion and $10 billion. (Some people put the range at $2 billion to $10 billion.)

I’ve always been partial to mid-caps, but not out of any desire to avoid foreign entanglements. I like them because they aren’t closely followed by analysts and institutions. You’re more likely to find a bargain in a stock that’s analytically neglected than in one that’s widely followed.

Here are five mid-caps that I think are attractive now.

Axos Financial

Axos Financial Inc. (AX) was launched as Bank of Internet USA in 2000. Although the Internet has vanished from the bank’s name, it remains key to the bank’s methodology: It does business mainly online.

Axos has grown its earnings by 20% a year, over the past decade. Growth in the latest year was even faster, and the stock is up 21% in the past 12 months. Operating entirely in the U.S., the bank appears somewhat immune to trade wars. The stock trades at less than nine times earnings.

Meritage Homes

Down 18% in the past year (through March 28), Meritage Homes Corp. (MTH) seems to me to have comeback potential. The homebuilding industry is beset by two problems. Homes are too expensive for many buyers. And people are reluctant to move because they are hanging onto low-cost mortgages.

Even so, Meritage earned a 16% return on equity in the past four quarters. Think what it could do if and when industry conditions improve.

The company, based in Scottsdale, Arizona, does business in ten states, concentrating on warm-climate states such as Arizona, California, Florida, Texas and the Carolinas. The stock is cheap, about seven times earnings and only 0.8 times sales.

United States Lime

United States Lime & Minerals Inc., based in Dallas, Texas, sells lime and limestone products used in construction, paper and glass manufacturing, steel making, water treatment, and other applications.

Weighing in at 23 times earnings, this is not a cheap stock. However, its return on equity sparkles at 24% and its net profit margin is 34%. The balance sheet is super, with debt only 1% of equity.

Academy Sports

According to Wikipedia, Academy Sports + Outdoors Inc. (ASO), out of Katy, Texas, started in 1938 as an Army-Navy surplus goods store, and was a privately held company owned by the Gochman family until 2011. Then private-equity firm Kohlberg Kravis Roberts bought it, and sold it to the public in 2020.

As a public company, it has been profitable every year, but profits fell in fiscal 2024 and 2025. The stock has fallen 31% in the past year, and now sells for a mere eight times earnings. Value investors I respect (such as Joel Greenblatt and Chuck Royce) have been nibbling at the shares.

The chain has more than 300 stores in 21 states, selling sporting goods including guns and ammunition.

Seadrill

Energy stocks have lagged behind the overall market in the past year, which is odd since the U.S. now has a “drill baby, drill” President. I think that the pendulum has swung too far, and I like the energy sector, including Seadrill Ltd (SDRL), an offshore drilling contractor based in Houston, Texas.

It operates off the coasts of the U.S. Angola, Brazil, Canada and Norway. The stock has plummeted almost 50% in the past year, and now sells for a pitiful multiple — four times recent earnings. The stock price is below book value (corporate net worth per share).

The Record

This is the second column I’ve written about mid-cap stocks. The first one, in January 2024, produced a 17.1% return in 12 months.

That was better than the 15.8% return on the Standard & Poor’s 400 Mid-Cap Index but not as good as the 24.3% return on the S&P 500 Total Return Index, which tracks large-cap stocks.

My best pick was Unum Group (UNM), up 69%. My worst was Agco Corp. (AGCO), down 13%.

Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.

Disclosure: I own Meritage shares personally and for most of my clients.