5 Must-Buy Mid-Cap Stocks With Strong Near-Term Potential

U.S. stock markets have witnessed renewed momentum in the first half of 2024 after an impressive 2023. The bull run continued in the past 18 months, barring some minor fluctuations. This year's rally has taken a section of financial experts by surprise as they warned of a downside due to higher stock valuations and the Fed's decision to keep interest rates higher for longer than expected.

Year to date, the three major stock indexes — the Dow, the S&P 500 500 and the Nasdaq Composite — have rallied 4.2%, 16.8% and 23.2%, respectively. The mid-cap benchmark — the S&P 400 Index — has also advanced 5.3% year to date.

Within the mid-cap space, a handful of stocks (market capital > $8 billion< $10 billion) have the potential to become large caps in 2024. Investment in these stocks with the most favorable Zacks Rank should lead to handsome returns this year.

Why Should You Invest in Mid-Cap Stocks?

Investment in mid-cap stocks is often recognized as a good portfolio diversification strategy. These stocks combine the attractive attributes of both small and large-cap stocks. Top-ranked, mid-cap stocks have a high potential to enhance their profitability, productivity, and market share. These may also become large-caps over time.

If economic growth slows down due to any unforeseen internal or external disturbance, mid-cap stocks will be less susceptible to losses than their large-cap counterparts owing to less international exposure.

On the other hand, if the economy continues to thrive, these stocks will gain more than small caps due to established management teams, a broad distribution network, brand recognition and ready access to capital markets.

Our Top Picks

We have narrowed our search to five mid-caps that have strong potential for the rest of 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Finally, each of our picks sports a Zacks Rank #1 (Strong Buy).

The chart below shows the price performance of our five picks in the past month.

Image Source: Zacks Investment Research

The Gap Inc. GPS received a boost on the back of lower airfreight and improved promotions which aided its margins. GPS is on track with the execution of its Power Plan 2023. Lower advertising expenses and technology investments resulting from cost-saving actions also bode well for GPS. Gross margin expanded owing to gains from higher merchandise margins, lower commodity costs and better promotional activity.

The GAP has an expected revenue and earnings growth rate of 0.2% and 21.7%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 3.6% over the last 30 days.

The average price target of brokerage firms represents an increase of 13.5% from the last closing price of $23.88. The brokerage target price is currently in the range of $13-$32. This indicates an upside potential of 34% from the current price level.

Abercrombie & Fitch Co. ANF has benefited from continued momentum across both brands, which bolstered its holiday sales. ANF has been witnessing strong sales growth for each of its brands. ANF witnessed favorable margin trends mainly driven by reduced freight costs and improved average unit retail. For the first quarter of fiscal 2024, net sales are projected to be up low double-digits from $836 million reported in the year-ago period.

Abercrombie & Fitch has an expected revenue and earnings growth rate of 10.4% and 47.3%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 3.5% over the last 30 days.

The average price target of brokerage firms represents an increase of 4.1% from the last closing price of $179.75. The brokerage target price is currently in the range of $167-$215. This indicates an upside potential of 19.6% from the current price level.

Duolingo Inc. DUOL operates as a mobile learning platform in the United States, China, the United Kingdom, and internationally. DUOL offers courses in 40 different languages, including Spanish, English, French, German, Italian, Portuguese, Japanese, and Chinese through the Duolingo app. DUOL also provides a digital language proficiency assessment exam.

Duolingo has an expected revenue and earnings growth rate of 37.8% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 26.1% over the last 60 days.

The average price target of brokerage firms represents an increase of 27.2% from the last closing price of $193.82. The brokerage target price is currently in the range of $190-$275. This indicates an upside potential of 41.9% from the current price level.

Paycom Software Inc.'s PAYC strong financial performance reflects continued growth despite disruptions caused by macroeconomic headwinds. PAYC's revenues increased due to new client additions and a continued focus on cross-selling to existing clients.

PAYC's differentiated employee strategy, measurement capabilities and comprehensive product offerings are helping it win new customers. PAYC's solutions, like Ask Here and Manager on-the-Go, focusing on employee usage and efficiency, are tailwinds.

Paycom Software has an expected revenue of 10.2% for the current year. Although its earnings growth rate is negative for the current year, it is 11.4% for next year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 30 days.

The average price target of brokerage firms represents an increase of 27.1% from the last closing price of $143.11. The brokerage target price is currently in the range of $145-$250. This indicates an upside potential of 74.9% from the current price level.

Elbit Systems Ltd. ESLT is a worldwide leader in Night Vision Goggles Head-Up Displays. ESLT is a major supplier to the U.S Army and U.S. Marine Corps of Night Vision Head-Up Display systems for use in various types of helicopters.

ESLT is engaged in a wide range of defense-related airborne, ground and command, control and communications programs throughout the world. ESLT's focus is on the upgrading of existing military platforms and developing new technologies for defense applications.

Elbit Systems has an expected revenue and earnings growth rate of 7.3% and 11.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 17.7% over the last 60 days. The average price target of brokerage firms represents an increase of 20.4% from the last closing price of $184.

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