As midcap stocks as an asset class are on the rise, Installed Building Products NYSE: IBP
, SiteOne Landscape Supply NYSE: SITE
and Masonite International NYSE: DOOR
are price leaders.
Academic research has shown that smaller stocks tend to outperform larger peers over time. While there’s been debate recently if the small-cap premium still exists, it’s clear that midcaps, stocks with a market capitalization between $2 and $10 billion, are shining.
The SPDR S&P Midcap 400 ETF NYSEARCA: MDY has topped the performance of the SPDR S&P 500 ETF NYSEARCA: SPY.
Year-to-date total return:
One-year total return:
Given that outperformance, why don’t we hear more about midcap stocks? Mostly because they’re not the behemoth market movers that constitute the top components of the S&P 500.
Midcaps are more nimble than large caps, meaning managers can pivot faster to pursue a project or abandon it. They can also raise funds more easily than smaller companies, and have more attention from Wall Street analysts, which attracts investment.
Here’s a look at three midcap stocks whose stocks rallied Friday. All hail from some area of the red-hot home building and remodeling industries.
Installed Building Products, with a market cap of $3.9 billion, bolted $4.79 Friday in heavier-than-average volume, closing at $131.68.
The stock was up 8.58% for the week, and it cleared a buy point of $131.11 of a consolidation that began in February.
Installed Building Products is an installation contractor for garage doors, rain gutters, insulation, shower doors, fireplaces and other items. Like many other building industry companies, it’s been growing during the housing boom.
On April 15, it announced the acquisition of Alert Insulation, a California company that installs insulation, acoustical ceiling systems and fireproofing services in commercial buildings. provider of fiberglass insulation installation, fireproofing services and acoustical ceiling system installation to commercial customers.
Earnings grew at double-digit rates in the past eight quarters. Net income met or beat analysts’ estimates in the past nine quarters. The stock has a robust return on equity, 45%, showing good deployment of investment capital.
The stock is potentially in a buy zone, having cleared its pivot point by less than a dollar on Friday.
SiteOne Landscape Supply is another midcap stock trading at new highs. It advanced $5.24 or 2.96% to $182.32. It rallied to a high of $184.37 on April 12, then pulled back to find support at its 10-day moving average. Watch for it to clear resistance above that prior high.
The company has a market cap of $8 billion. It operates 150 retail locations selling equipment and tools for irrigation, nurseries and gardens, grass seeds, outdoor lighting and other exterior and landscaping needs.
Here again, is a company showing strength during the boom in home improvement and homebuilding. Shares advanced 14.93% year-to-date and 155.82% over the past year.
Sales and earnings growth accelerated in the past two quarters. However, when the company reports its first-quarter at the end of May, analysts expect a loss of $0.44 per share on $538.11 million. That would be an improvement on the revenue side.
Mutual fund ownership grew in the most recent quarter, after a dip in the prior quarter. That’s a good sign, as growing institutional ownership is what sends a stock’s price higher.
Masonite International, with a market cap of $3.19 billion, gapped up $5.02 Friday, closing at $130.70, a gain of 3.99%. Volume was 72% above average.
The company makes and sells interior and exterior doors and related products, such as molding, used in construction and remodeling. Although it sells into numerous channels, such as European construction, corporate and architectural, the bulk of its revenue comes from the North American residential market, which has been booming.
The stock has been in rally mode since breaking out of a cup-with-handle base in December. Year-to-date, the stock is up 32.91%, and the one-year return is 196.04%.
Earnings grew at double- or triple-digit rates in the past four quarters.
The stock is extended beyond any reasonable buy point. In addition, it’s due to report quarterly earnings on May 4. Investors would be best served to watch the stock’s chart action, and watch how its chart patterns play out following the report. A moving average pullback or even a new area of consolidation could offer a new entry point.
Before you consider Installed Building Products, you'll want to hear this.
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