Mid-cap stocks have the best odds of scaling into $100 billion corporations thanks to their tested business models and large addressable markets. But the many opportunities in front of them attract significant competition, spanning from industry behemoths with seemingly infinite resources to small, nimble players with chips on their shoulders.
This is precisely where StockStory comes in - we do the heavy lifting to identify companies with solid fundamentals so you can invest with confidence. Keeping that in mind, here are three mid-cap stocks to avoid and some other investments you should consider instead.
Royalty Pharma (RPRX)
Market Cap: $18.84 billion
Pioneering a unique business model in the pharmaceutical industry since 1996, Royalty Pharma (NASDAQ:RPRX) acquires rights to receive portions of sales from successful biopharmaceutical products, providing funding to drug developers without conducting research itself.
Why Is RPRX Not Exciting?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Revenue base of $2.35 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 4.4 percentage points
At $44.16 per share, Royalty Pharma trades at 8.7x forward P/E. Dive into our free research report to see why there are better opportunities than RPRX.
Annaly Capital Management (NLY)
Market Cap: $16.25 billion
Operating as a real estate investment trust since 1996 with a focus on generating income from interest rate spreads, Annaly Capital Management (NYSE:NLY) is a diversified capital manager that invests in agency mortgage-backed securities, residential mortgage loans, and mortgage servicing rights.
Why Is NLY Risky?
- Net interest income tumbled by 11.4% annually over the last five years, showing market trends are working against its favor during this cycle
- Net interest margin of 0.6% is well below other banks, signaling its loans aren’t very profitable
- Earnings per share have contracted by 7.9% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
Annaly Capital Management is trading at $22.89 per share, or 1.1x forward P/B. Read our free research report to see why you should think twice about including NLY in your portfolio.
International Flavors & Fragrances (IFF)
Market Cap: $18.81 billion
Responsible for the scents in your favorite perfumes and the flavors in your daily snacks, International Flavors & Fragrances (NYSE:IFF) creates and manufactures ingredients for food, beverages, personal care products, and pharmaceuticals used in countless consumer goods.
Why Do We Think IFF Will Underperform?
- Products aren't resonating with the market as its revenue declined by 4.3% annually over the last three years
- Persistent operating margin losses suggest the business manages its expenses poorly
- Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam
International Flavors & Fragrances’s stock price of $73.42 implies a valuation ratio of 17.1x forward P/E. If you’re considering IFF for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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