The S&P 500 (^GSPC 1.02%) has posted serious gains in 2013, resting near record highs with a total return of around 30% for the year. But mid-cap stocks have also performed very well, as the S&P MidCap 400 has actually beaten out its large-cap rival by a small margin. In particular, SunEdison (SUNEQ), SUPERVALU (SVU), 3D Systems (DDD), and Endo Health Solutions (ENDP) posted impressive gains this year. Could one of them become the next addition to the S&P 500? Let's take a closer look at these four mid-cap winners.
Mid-Cap Stocks Total Return Price data by YCharts
Winning big by looking small(ish)
Investors in mid-cap stocks get the best of both the large-cap and small-cap worlds. Mid-caps are big enough to have established track records of success that make them less likely than small-caps to fail, having also built upward momentum simply by nature of their having graduated from small-cap status. At the same time, they have more room to grow than large-cap stocks, giving htem greater return potential. You can see the benefits in all four of these stocks.
For SunEdison, the rise of solar energy in 2013 has played a key role in the company's 299% gains, with strength throughout the industry lifting many solar stocks. SunEdison managed to post a small adjusted profit in its most recent quarter, showing how much progress it has made from more dramatic losses in the recent past. Yet much of the attention SunEdison has gotten lately comes from its planned strategic moves to spin off its semiconductor business and to create another entity to hold some of its solar-related assets, allowing SunEdison to focus on its utility-scale solar business. However, recent declines from poor guidance and an offering of convertible notes and last week's withdrawal of bond ratings by Moody's could be signs that SunEdison will face a tougher road for further share-price gains ahead.
SUPERVALU, meanwhile, has jumped 180% after making the major move early this year of selling off several of its best-known grocery chains, including Albertson's, Jewel/Osco, and Shaw's. That sale got investors feeling more confident about the company's ability to weather its debt storm and start growing again on a more modest scale. Yet SUPERVALU faces plenty of challenges both from traditional grocers and from dollar-store competitors, weighing on sales of its retail-food stores as well as its Save-A-Lot discount locations.
3D Systems has been a big beneficiary of the 3-D printing phenomenon, with the company posting stock-price gains of 155%. Many investors have pointed at 3D Systems' consumer-oriented printers, incorrectly assuming that it has ceded the more lucrative industrial-printing side of the business to rivals. Yet despite their attention-grabbing features, consumer printers only accounted for a tenth of 3D Systems' total revenue last quarter, showing that the company isn't ignoring industrial applications. With a market capitalization of $9.3 billion and as the preeminent representative of the 3-D printing industry, 3D Systems is the most likely candidate of these four stocks to join the S&P 500 in the near future.
Endo Health Solutions has jumped 152%, with most of those gains coming after Endo bought Canada's Paladin Labs for $1.5 billion. The deal includes a beneficial move to an Irish holding company, which could help the merged entity on the tax front. In addition, Endo's more recent purchase of NuPathe for $105 million in cash will give Endo a deeper product lineup, including migraine drug Zecuity and anesthetic Lidoderm. Once the deals close, investors will see whether Endo reaps all the rewards it hopes to gain from its purchases.
Think not-so-big
Large-cap stocks might be the most glamorous, but mid-caps often give you better returns. Keep looking among the mid-cap ranks for stocks that could become tomorrow's big winners.
