Though large-cap growth stocks have been the main drivers of the stock market’s rally since the COVID-19 pandemic-led correction in March last year, mid-cap stocks have been no less attractive to analysts and investors. This is evident in the Vanguard Mid-Cap Growth ETF’s (VOT) 48.9% gain over the past year, compared to the broader market S&P 500’s 29% returns.
There is a risk associated with investing in mid-cap stocks because they tend to be more volatile than their larger peers. However, we think it’s worth considering mid-cap players now because most large-cap growth stocks are trading at lofty valuations, making them more susceptible to a pullback. Moreover, given their relatively smaller size, small-cap companies have more room for growth.
Polaris Industries Inc. (PII), American States Water Company (AWR) and LG Display Co, Ltd (LPL) have delivered strong performance over the past year but we believe they are still well positioned to generate attractive returns on the back of their solid fundamentals and compelling growth attributes.
Polaris Industries Inc. (PII)
PII is a global leader in Powersports that offers off-road vehicles (ORVs), including all-terrain vehicles and side-by-side vehicles, snowmobiles and snow bike conversion kit systems, motorcycles, and low emission, light duty hauling, passenger, and industrial vehicles. Based in Minnesota, PII serves more than 100 countries worldwide through its dealer network and e-commerce website. It operates in five segments – ORV and Snowmobiles, Motorcycles, Global Adjacent Markets, Aftermarket, and Boats.
Yesterday, PII unveiled plans to debut an all-new 2022 electric RANGER utility side-by-side in late December 2021, advancing the company’s strategic rEV’d up electrification strategy. The full-size RANGER is the first electric vehicle PII has developed through its powersports industry-exclusive partnership with Zero Motorcycles, which the two companies forged last September. PII expects the new electric RANGER to begin arriving in dealerships in early 2022.
Over the past three years, PII’s revenue has grown at a CAGR of 8.9%. In the fourth quarter, ended December 31, 2020, the company’s adjusted revenues increased 24% year-over-year to $2.16 billion. Retail demand and industry tailwinds remained strong during the quarter benefiting company performance because new and existing customers continued taking advantage of off-road vehicles, snowmobiles, motorcycles and boats. Its EPS came in at $3.15, nearly doubling from the year-ago value of $1.58.
PII is up 30.5% so far this year. Despite witnessing manufacturing plant shutdowns and supply chain constraints for most of the past year, PII brought in new customers and powersports enthusiasts on the back of its product line-up of ORVs, snowmobiles and boats. In fact, PII introduced more than 120 new products across its portfolio and more than 900 new accessories in its PG&A business and Aftermarket segment combined over the past year. As management shifts its focus to rebuilding the company’s dealer inventories this year, Wall Street analysts expect PII’s current year revenue and EPS to rise 15.2% and 12.8%,respectively, year-over-year.
PII’s POWR Ratings reflect this promising outlook. PII has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
It also has an A grade for Growth and B for Quality and Momentum. It is ranked #9 of 53 stocks in the B-rated Auto & Vehicle Manufacturers industry.
In total, we rate PII on eight different levels. Click here to check additional POWR Ratings for PII (Value, Stability and Sentiment).
American States Water Company (AWR)
AWR is the parent company of Golden State Water Company (GSWC), Bear Valley Electric Service (BVES), and American States Utility Services (ASUS). It provides water and electric services to more than one million residential, commercial, industrial, and other customers in nine states of the United States. It operates through three segments – Water, Electric, and Contracted Services.
Last month , a procedural hearing was held on GSWC’s pending water general rate case that will set new rates for the years 2022 to 2024. In this hearing, the administration confirmed that GSWC is entitled to retain the use of the Water Revenue Adjustment Mechanism (WRAM) and the Modified Cost Balancing Account (MCBA) through the year 2024. GSWC’s next general rate case application will be filed in 2023 to establish new rates for the years 2025 – 2027.
AWR’s revenue and EPS grew at CAGRs of 3.5% and 7.5%, respectively, over the past three years. In the fourth quarter that ended December 31, 2020, AWR’s operating revenue improved 10% year-over-year to $124 million. The company witnessed higher gross margins across all segments due to the increased rates authorized by the California Public Utilities Commission (CPUC). Its EPS came in at $0.54, rising 20% compared to the year-ago value of $0.45.
AWR is making systematic investments in strengthening its aging water infrastructure while building a solid utility customer base. In the first six months of 2020, the AUSU segment was awarded $6 million to fund new construction projects to be completed by the end of 2021. This unit is expected to contribute 46-50 cents per share to the company’s current-year earnings. Analysts further expect AWR’s current year revenue and EPS to rise 3.3% and 3%, respectively.
AWR’s POWR Ratings reflect this promising outlook. The stock has a B grade for both Growth and Stability. In the 14-stock Water Industry, it is ranked #5.
Beyond what we’ve stated above, we have also given AWR grades for Value, Momentum, Sentiment, and Quality. Get all AWR’s ratings here.
LG Display Co, Ltd (LPL)
Korea-based LPL is the world’s leading display company that manufactures and sells thin-film transistor liquid crystal display (TFT-LCD) and organic light emitting diode (OLED) technology-based display panels in Asia, Europe and the United States. LPL’s products have diverse applications and are primarily used in televisions, computers, desktop monitors, mobile devices, and automobiles.
Tech-giant Apple (AAPL) recently unveiled a plan to launch foldable iPhones in a year or two and LPL is reportedly developing foldable display panels for the device. AAPL is aiming for a thinner display than the foldables of its rivals and is having LPL work on foldable OLED technology. In addition, LPL has recently invested an additional $750 million at its plant in Vietnam to expand its OLED panel productions.
For the fourth quarter ended December 31, 2020, LPL generated $6.74 billion in revenues, increasing 16% year-over-year. The global work-and-learn-from-home trend has generated robust demand for LPL’s TV and IT products and shipments of both large-size OLED and P-OLED have increased meaningfully. In fact, LPL’s panel area shipment increased by 5% sequentially and its ASP (average selling price) per square meter soared by 12% over the same period, driving LPL’s increase in revenues. Its EPS came in at $1.57, a significant improvement compared to the year-ago loss of $4.59 per share.
LPL has gained 77.1% in the past year because the demand for OLED screens is rising across multiple markets. To meet the robust demand for smartphone displays, LPL has begun full-scale production of OLED screens in its new plant in Guangzhou, China. LPL posted a net profit in the third quarter, representing its first profitable quarter in nearly two years, and it remained profitable in the fourth quarter. In line with this progress, analysts expect LPL’s current year revenue and EPS to grow 31.3% and 254.5%, respectively, year-over-year.
It is no surprise that LPL has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. LPL has an A grade of A for Growth and Value, and a B grade for Momentum. It is ranked #10 in the 43-stock A-rated Technology – Electronics industry.
Click here to see the additional POWR Ratings for LPL ( Stability, Sentiment, and Quality).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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PII shares were trading at $124.38 per share on Tuesday afternoon, up $0.03 (+0.02%). Year-to-date, PII has gained 31.22%, versus a 4.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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