On one end of the equity investing spectrum you have small-cap stocks, growth-oriented businesses that hold a lot of potential, but also a lot more risk. At the other are the large-caps, the often stodgy leaders of the market that have proved their business acumen but are typically slow growers.
That leaves mid-cap stocks well, right in the middle, arguably offering investors the best of all worlds: Small enough that they still can surprise with the speed and trajectory of their growth, but big enough that you don't have to worry that they are fly by-night operators.
Yet not all mid-cap stocks have the ability to grow enough to become large-caps, so let's see if the three stocks below have the gumption to give investors the right balance of risk and reward heading into the future.
fuboTV (Market cap: $2.9 billion, CAPS rating: 5 stars)
fuboTV (FUBO -2.04%) seems to be a contradiction: The live sports television streaming leader enjoys significant investor support, and garnered a five-star rating on CAPS, with 99% of those weighing in on the stock seeing it outperforming the market over the long term. But its stock is down 27% year to date and over 66% from its 52-week high.
Part of that is likely due to fubo consistently reporting large losses as content expenses far outweigh the revenue per subscriber it generates. Worse, because those expenses are incurred on a per-subscriber basis, unless it significantly raises prices for users, the more revenue it generates the more its costs will rise.
Yet it recently opened an avenue to change that dynamic. fuboTV is going to be entering the fast-growing sports betting market -- a potential $22 billion opportunity (or more, depending upon who's counting). fubo announced in December that it was buying fantasy sports outfit Balto Sports as a way to enter the market.
With a little over a half million subscribers now, the growth of connected TV is expected to give fubo a potential new base of 2 million subscribers annually to tap into as CTV is expected to double annually through 2023. Needham analyst Laura Martin also sees fubo's main demographic of upscale men as being an especially lucrative target, giving it significant growth potential on subscriptions and advertising. Adding in sports betting could elevate that further.
The problem there is it will compete against industry titans FanDuel and DraftKings (DKNG -0.26%), the No. 1 and No. 2 players in the space that own about 75% of the market. Still, it's an expanding space that probably has a lot of room for multiple participants, with niche offerings. Less than half of all states currently permit sports betting
Coupling its core live sports streaming business with a sports betting app (something DraftKings sees big potential in) could give fuboTV a competitive edge.
To reach large cap potential, fuboTV would need to triple in size, which Martin believes can happen fairly quickly. She has a $60 per share price target on the stock because the combined growth of connected TVs, advertising revenue, and sports betting can generate rapid revenue and profit margin expansion.
Tilray (Market cap: $2.9 billion, CAPS rating: 1 star)
Marijuana producer Tilray (TLRY) is prepared for full legalization in the U.S. now that it is acquiring Aphria, which will create the world's largest cannabis company. It is uniquely positioned to capitalize on the Canadian market (where marijuana is legal) with a better than 17% share, as well as holding a near-19% share in vape cartridges.
Tilray will also gain exposure to the U.S. craft beer market, where CBD-infused beverages are becoming a hot growth item, as Aphria bought craft brewer SweetWater Brewing, one of the fastest-growing craft brewers, last November.
Still, CAPS players seem to be concerned about how long it will take to realize its potential, assigning a one-star CAPS rating to the stock. This signals that they see the stock indexes outperforming the marijuana stock, at least for the immediate future.
Like fuboTV, it must also triple in size, and that seems extremely possible as well given the global reach Tilray will have. Following the closing of the Aphria deal, it will have the largest market share in Canada, will be poised to take advantage of further legalization opportunities in the U.S., especially if federal recognition occurs, and will have a significant presence in Europe where Aphria's CC Pharma is a leading cannabis distributor.
Having also just won licenses in Portugal and the U.K. to import and distribute medical cannabis products in those markets, Tilray can see revenues expand significantly and its valuation widen over the next five years to achieve large cap status.
Virgin Galactic (Market cap: $5.1 billion, CAPS rating: 3 stars)
Although Tesla's Elon Musk seems to capture all the headlines with his SpaceX venture -- just a couple of weeks back, its Crew-2 ship took off for the International Space Station -- Virgin Galactic (SPCE 3.54%) is looking to take flight and challenge its peer: Not necessarily in mundane shuttle missions, but rather in commercializing the universe for space tourism.
Virgin is ready to resume flight testing next month aboard a new spaceship, the VSS Imagine. Having learned a lot from the successful trips made by its current ship, the VSS Unity, Virgin is ready to head to the heavens again and put that education to good use.
Still, what holds the most promise is also the biggest problem with the stock. Virgin Galactic had told investors all the testing would be completed by the end of February, which would have put it much closer to making tourism in outer space a reality. But it surprised investors -- and not in a good way -- by telling them earlier this year they'd have to wait till May for testing to resume.
That's around the corner now, and investors are probably in a wait-and-see mode when it comes to the stock. They certainly didn't get a boost of confidence after founder Richard Branson sold off a large chunk of stock, while famed money manager Cathie Wood also sold large amounts of stock.
If these key people are selling, investors may be asking, why should I buy in? The three-star rating Virgin Galactic has garnered on CAPS suggests the market may be in a "show me first" mood.
Yet Virgin already achieved large-cap fame just a few months ago when its stock rocketed to over $60 a share on the promise of its first test launch. While the stock tumbled hard after it had to delay the launches, there seems little to prevent its shares from leaving Earth's gravity again when it finally takes off later this month.
With an aircraft that can fly at Mach 3 at 60,000 feet in the design phase, it could reduce travel time between New York and London to just two and a half hours, about a third of what it takes today. That bodes well for travel and Virgin Galactic's future.