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.
These dynamics can rattle even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three mid-cap stocks to avoid and some other investments you should consider instead.
J. M. Smucker (SJM)
Market Cap: $10.22 billion
Best known for its fruit jams and spreads, J.M Smucker (NYSE: SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.
Why Is SJM Risky?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Efficiency has decreased over the last year as its operating margin fell by 23.7 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
J. M. Smucker’s stock price of $95.90 implies a valuation ratio of 9.4x forward P/E. Read our free research report to see why you should think twice about including SJM in your portfolio.
United Airlines (UAL)
Market Cap: $24.27 billion
Founded in 1926, United Airlines Holdings (NASDAQ: UAL) operates a global airline network, providing passenger and cargo air transportation services across domestic and international routes.
Why Do We Steer Clear of UAL?
- Demand for its offerings was relatively low as its number of revenue passenger miles has underwhelmed
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 6.8 percentage points
- Underwhelming 5.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
United Airlines is trading at $74.40 per share, or 7x forward P/E. Dive into our free research report to see why there are better opportunities than UAL.
Solventum (SOLV)
Market Cap: $12.57 billion
Founded in 1985, Solventum (NYSE: SOLV) develops, manufactures, and commercializes a portfolio of healthcare products and services addressing critical customer and therapeutic patient needs.
Why Are We Cautious About SOLV?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Expenses have increased as a percentage of revenue over the last two years as its adjusted operating margin fell by 4.2 percentage points
- Earnings per share fell by 21.9% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
At $72.34 per share, Solventum trades at 12.8x forward P/E. If you’re considering SOLV for your portfolio, see our FREE research report to learn more.
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