Why You Should Invest in the Middle of the Market (and 3 of the Best Stocks to Buy There)

Given their healthy growth prospects and attractive valuations, these three mid-cap stocks could outperform over the next three years.

| More on:

Midcap stocks offer higher growth prospects than large-cap stocks while less risky than small-cap stocks. Investors with longer investment horizons and moderate risk-taking abilities could invest in mid-cap stocks to earn superior returns. Meanwhile, here are my three top picks.

goeasy

goeasy (TSX:GSY) would be my first pick due to its consistent performance over the last 20 years and healthy growth prospects. The subprime lender has increased its revenue and adjusted EPS (earnings per share) in double digits over the previous 20 years, thus delivering over 2,300% returns at an annualized rate of 17.3%. In June, the company’s loan portfolio crossed $4 billion. Given its diversified lending model and expansion initiatives, it took just 14 months to grow its loan portfolio from $3 billion to $4 billion.

The Bank of Canada has slashed interest rates twice this year, and investors are hoping for one more cut. Besides, the United States Federal Reserve has indicated that rate cuts are on the horizon. Falling interest rates could boost economic activities, thus driving credit demand and expanding the addressable market of goeasy. Meanwhile, the company’s management expects its loan portfolio to reach $5.8-$6.2 billion in 2026, representing a 45% increase from June 30th levels. These expansions could boost its top line at an annualized rate of 14% while expanding its operating margin to 42% by 2026.

Further, goeasy also pays quarterly dividends and trades at 10.1 times analysts’ projected earnings for the next four quarters, making it an attractive buy.

Cargojet

Second on my list is Cargojet (TSX:CJT), which provides time-sensitive premium air cargo services to major North American cities. In the recently reported second quarter, the company’s revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 10.1% and 6.5%, respectively. Amid its strong performance, its free cash flows improved to $0.5 million compared to a net outflow of $18.5 million in the corresponding quarter of the previous year. It also repaid $102 million of debt during the second quarter, leading to a decline in its leverage ratio (net debt-to-adjusted EBITDA) from 2.6 at the beginning of the year to 2.3.

Meanwhile, the expansion of e-commerce has created a long-term growth prospect for Cargojet. In June, the company signed a three-year agreement with a Chinese e-commerce company to provide scheduled charter services three times a week between China and Canada. Its long-term contracts generate around 75% of its domestic revenue, providing financial stability. Further, its valuation also looks reasonable, with the company trading two times analysts’ projected sales for the next four quarters.

Lightspeed Commerce

My last pick is Lightspeed Commerce (TSX:LSPD), which has been under pressure this year. The concerns that a global slowdown could lower IT (information and technology) spending have made investors nervous, leading to a selloff. The company has lost around 35% of its stock value this year. However, I believe the correction is overdone, with the company’s next-12-month price-to-sales and price-to-book multiples at 1.8 and 0.9, respectively.

Moreover, the company continues to win new customers and increase its average revenue per customer. It is also focusing on expanding the adoption of its unified point of sales and payment offerings and introducing new innovative products, which could support its growth in the coming quarters. Its cost-cutting initiatives could continue to improve its profitability, with the management expecting its fiscal 2025 (which ends on March 31, 2025) adjusted EBITDA to come between $40 million and $45 million. The guidance represents a substantial increase from $1.3 million in fiscal 2024. Given its healthy growth prospects and discounted stock price, I expect Lightspeed Commerce to outperform over the next three years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cargojet. The Motley Fool recommends Lightspeed Commerce. The Motley Fool has a disclosure policy.

More on Investing

think thought consider
Investing

Should You Buy Couche-Tard Stock Aggressively Before Nov. 25?

Here’s what could help Couche-Tard stock rebound after its upcoming earnings event.

Read more »

calculate and analyze stock
Bank Stocks

4% Dividend Yield? I Keep Buying This Dividend Stock in Bulk!

If you find the perfect dividend stock, you never have to worry about investing again. And that's what you get…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Should You Buy the 3 Highest-Paying Dividend Stocks in Canada?

A few dividend stocks saw a sharp correction in November, increasing their yields. Are they a buy for high dividends?

Read more »

oil and natural gas
Investing

Is Imperial Oil Stock a Buy for its 2.3% Dividend Yield?

Imperial Oil (TSX:IMO) stock: A century of dividends, 30 years of growth, and a 2.3% yield that could evolve into…

Read more »

Paper Canadian currency of various denominations
Stock Market

3 No-Brainer Stocks to Buy Right Now for Less Than $120

Here are three undervalued TSX stocks that are positioned to deliver outsized gains to shareholders over the next 12 months.

Read more »

Man holds Canadian dollars in differing amounts
Investing

Have $500? 3 Absurdly Cheap Stocks Long-term Investors Should Buy Right Now

These three cheap stocks offer excellent buying opportunities for long-term investors.

Read more »

money while you sleep
Dividend Stocks

Buy These 2 High-Yield Dividend Stocks Today and Sleep Soundly for a Decade

These stocks pay attractive dividends that should continue to grow.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

$15,000 Windfall? This Dividend Stock Is the Perfect Buy for Monthly Passive Income

If you get a windfall, after debt investing should be your next top option to create even more passive income!

Read more »