The 3 Top Mid-Cap Stocks to Invest in Right Now

November 2, 2023
By The Investing Insider Staff

If you're tired of choosing between slow-growing large caps or risky small caps, it's time to direct your attention to an often overlooked opportunity: mid-cap stocks.

Serving as a bridge between the stability of large caps and the high-upside potential of small caps, these innovative companies command consideration from savvy investors in today's market.

You see, mid-caps have moved beyond the volatile startup phase but maintain substantial room for expansion. This strategic positioning allows them to deliver a powerful blend of reliability and high-growth prospects lacking in other stocks.

In an uncertain market landscape continuously disrupted by new technologies and macroeconomic events, mid-caps can provide the balanced exposure your portfolio needs. Their cutting-edge innovations also make them well-suited to capitalize on seismic industry shifts.

But not all mid-caps are created equal.

Allow me to introduce three trailblazing companies leading technological transformation in their respective sectors: DocuSign (Ticker: DOCU), Twilio (Ticker: TWLO), and Roku (Ticker: ROKU).

Backed by strong financials and market positioning, these stocks represent focused bets on some of today's most exciting tech trends. As pioneers in their fields, they have barely scratched the surface of their potential.

Discover why these mid-cap disruptors deserve a place in your portfolio. Claim your briefing on the upside opportunities of DocuSign, Twilio, and Roku now:

Mid Cap Stock #1: DocuSign (DOCU) - The Future of Agreements

DocuSign has fundamentally changed the way businesses execute contracts and agreements. With the rise of remote work and digital transformation, the company's solutions have become increasingly indispensable.

DocuSign's flagship offering is its eSignature solution, a versatile platform that enables electronic signing of documents across various devices. The company tailors this solution to meet the unique needs of different regions, sectors, and organization sizes. In addition to its core eSignature service, DocuSign offers a range of supplementary features such as text message delivery, identity authentication, online notarization, and customizable forms.

Beyond eSignatures, DocuSign provides Contract Lifecycle Management (CLM) solutions designed to streamline the entire agreement process, from initiation to post-signature management. The company has also developed specialized solutions catering to specific industries, including mortgage, real estate, life sciences, and federal government sectors.

DocuSign employs a subscription-based revenue model, with pricing structured around the number of "Envelopes" utilized and the specific functionalities required. An "Envelope," in DocuSign's terminology, is a digital package that can transmit one or multiple documents for signing or approval to one or several recipients.

After reaching lofty valuations, DocuSign's stock price has recently corrected to levels that many investors consider to be more reasonable and reflective of its intrinsic value. This adjustment presents a potentially attractive entry point for investors who believe in the company's long-term growth prospects but were previously deterred by its high valuation.

Mid Cap Stock #2: Twilio (TWLO) - The Cloud Communication King

Twilio has established itself as a key player in the field of cloud communications. As businesses make the shift to cloud-centric operations, Twilio's offerings are becoming increasingly essential for effective customer engagement strategies.

The company operates a cloud-based Communications Platform as a Service (CPaaS) that serves as the backbone for various customer engagement solutions. Its platform allows businesses to integrate communication functionalities like SMS, voice, and video directly into their applications via APIs.

Twilio has also expanded its offerings to include a Customer Data Platform (Segment) and a cloud-native contact center solution (Flex), creating a comprehensive ecosystem for customer engagement. This vertical integration enables Twilio to offer a one-stop solution for businesses, eliminating the need for multiple vendors. With a strong financial position and a business model that benefits from network effects, Twilio is well-positioned to capture a significant share of the growing customer engagement market.

Despite experiencing a period of exceptional growth, partly accelerated by the Covid-19 pandemic, Twilio's growth rates have recently moderated. However, the company is optimistic about its future prospects, particularly with generative AI expected to drive its next phase of growth in 2025.

While the market has yet to fully embrace these growth projections, as evidenced by the stock trading in the $50s, the investment outlook for Twilio remains positive.

Mid Cap Stock #3: Roku (ROKU): The Streaming Revolution

Roku has become synonymous with streaming technology, offering both hardware and an operating system that has become a staple in modern households. As cord-cutting continues to trend, Roku's platform is increasingly becoming the go-to for streaming services.

Roku operates a comprehensive streaming platform that serves as a central hub for consumers' entertainment needs. The company has a dual-revenue model, earning from both advertising and distribution. Despite the slow transition of advertising budgets from traditional to streaming TV, Roku is poised to benefit significantly as this shift accelerates. Currently, 45% of U.S. adult entertainment comes from streaming, yet only 18% of ad budgets are allocated to this medium, indicating a substantial untapped market.

Catalysts for Growth

  1. Advertising Revenue: Roku's ad-supported channels are a growing segment, providing a new revenue stream that complements its hardware sales.
  1. International Expansion: Roku has begun to make its mark internationally, offering a significant growth avenue.

Financially, Roku is in a solid position with no debt and $1.75 billion in cash and short-term investments. Despite expecting negative adjusted EBITDA for the rest of the year, the company turned free cash flow positive last quarter and aims to sustain positive cash generation by 2024. This robust financial standing, coupled with a strong user base and untapped advertising potential, positions Roku well for long-term growth.

Key Metrics to Monitor When Choosing A Mid-Cap Stock to Invest In:

  • Price-to-Earnings Ratio (P/E): A very high P/E ratio broadly signifies that the company is overvalued. While growth stocks often trade at higher P/E ratios, it's essential to compare these metrics with industry averages to gauge relative valuation.
  • Revenue Growth: Consistent revenue growth is a strong indicator of a company's market acceptance and scalability.
  • Operating Margins: Improving operating margins over time can signify effective cost management and operational efficiency.

Market Trends and External Factors

  • Regulatory Environment: DocuSign and Twilio operate in sectors that are subject to regulatory changes. Investors should keep an eye on potential legislative shifts that could impact these companies.
  • Technological Advancements: The pace of innovation in both cloud communications and digital contract management is rapid. The ability of these companies to stay ahead of the curve will be crucial for long-term success.
  • Economic Indicators: General economic conditions, such as interest rates and inflation, can indirectly impact mid-cap stocks. Monitoring these indicators can provide valuable context for your investment decisions.

Conclusion and Investment Outlook

When considering the inclusion of mid-cap stocks in your portfolio, it's essential to evaluate how they fit within your broader investment strategy. Given their growth prospects and relatively lower volatility compared to small-cap stocks, allocating a portion of your portfolio to these mid-caps can offer both diversification benefits and growth potential.

Investing in mid-cap stocks like DocuSign, Twilio, and Roku offers a unique blend of growth and stability. These companies have demonstrated strong financial performance and have multiple avenues for future growth.

Investors seeking to diversify their portfolios and mitigate risks should consider these stocks as strong contenders. However, as with any investment, thorough due diligence and consultation with financial advisors are essential.

-Investing Insider Staff
This article is informational purposes only and is not investment advice.  See full disclaimer here
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