Banking on the Goldilocks narrative, targeting the best mid-cap stocks centers mostly on balance. If you go the small-capitalization route, you’ll benefit from maximum upside potential. However, materializing said potential is a whole different ballgame. On the flip side, the blue chips offer a higher probability of success. Unfortunately, that success typically yields limited upside.
So, what do you do, especially under this ambiguous market cycle? In my opinion, the best mid-cap stocks give you an acceptable equilibrium between upside potential and reasonable predictability. Stated another way, the middle-of-the-road enterprises offer established businesses yet have enough margin for top-line expansion. Hopefully, you should enjoy solid double-digit returns while mitigating downside risk.
And with the benchmark equity indices again off to a rough start, a little reliability can go a long way. Plus, these ideas feature analyst backing and possibly favorable options dynamics. On that note, below are the best mid-cap stocks to buy now.
Founded in 1990, AGCO (NYSE:AGCO) is a U.S.-based agricultural machinery manufacturer. Per its public profile, the company designs, produces, and sells tractors, combines, foragers, hay tools, and smart farming technologies among many other equipment categories. Fundamentally, Agco offers indirect relevance for the broader food supply chain. However, since the start of the year, AGCO slipped about 6%.
On Wednesday, shares closed at $128.93. While AGCO might not look immediately enticing, its options market dynamics – specifically its volatility smile – suggest that traders anticipate the possibility of higher price movements. From the strike price of $135, implied volatility (IV) rises from a low of 0.23 to a high of 2.13 at the $200 strike.
All other things being equal, a higher IV equates to greater demand (price) for the underlying option. To be fair, some risk mitigation does exist, with IV rising to 1.35 at the $60 strike. However, IV doesn’t really accelerate to the downside until the range between $95 (IV of 0.47) to $80 (IV of 1.34).
Therefore, sentiment appears more bullish than bearish. And that’s confirmed with analysts pegging AGCO as a strong buy with a $161 average price target. This implies a near-25% upside, making AGCO one of the best mid-cap stocks.
Alaska Air (ALK)
As an airline holding company, Alaska Air (NYSE:ALK) presents a simultaneously risky and compelling case. On the one hand, rising consumer pressures – most notably stubbornly high inflation – present a tough backdrop for the broader airline industry. However, on the flip side, the consumer phenomenon known as revenge travel has been incredibly robust. People still desire experiences, which might make ALK one of the best mid-cap stocks to buy.
Now, the risk is that in the trailing month, ALK slipped more than 13% to land at $40.54 recently. Coincidentally, looking at ALK’s volatility smile, its IV sits at a low of 0.29 at the $40 strike price. However, from the perspective of call options holders, as the strike price moves to the far out-of-money (OTM) position, the IV rises. At its peak, the metric stood at 1.55 at the $75 strike.
Also, as the strike moves deeper in the money (ITM), IV also rises. However, the peak metric on the ITM side rises only to 0.97 at the $20 strike. So, here’s one possible takeaway. While traders are hedging for downside risk, they believe more in the bullish outcome. As confirmation, analysts peg ALK as a unanimous strong buy. Further, their average price target lands at $63.14, implying almost 56% upside.
Headquartered in South San Francisco, California, Cytokinetics (NASDAQ:CYTK) is a biopharmaceutical firm. Specifically, it focuses on the discovery and development of novel small-molecule therapeutics aimed at improving muscle function. Some of the diseases that Cytokinetics attempts to address include heart failure and amyotrophic lateral sclerosis (ALS also known as Lou Gehrig’s disease).
While scientifically relevant, CYTK hasn’t resonated with investors. Since the January opener, shares slipped more than 19%. In the past 365 days, they dropped nearly 30%. On Wednesday, CYTK closed at $35.81. However, turning to its options’ volatility smile, some traders appear optimistic. Specifically, IV sits at a low of 0.47 at the $38 strike. It then jumps to 1.32 at the $47 strike.
To be fair, traders may be accounting for extreme tail risk; that might explain the IV of 1.70 at the $20 strike. Aside from this extreme value, though, the next-highest IV for deep ITM strikes is 1.17 at $25. Therefore, smart money senses upside opportunities but also recognizes the dangers.
That said, analysts are willing to give CYTK a shot, pegging it a strong buy. Their average price target comes in at $60, implying almost 68% growth.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.