The last few months have seen several previously high achieving mid-cap stocks fall from grace amidst disappointing earnings expectations and macroeconomic uncertainty. Such dramatic shifts in sentiment can provide opportunities for brave investors who do their homework. Here are introductions to five stocks that I think look interesting right now but require further research.
Capilano Honey Ltd (ASX: CZZ)
I used to own shares in Capilano but am starting to get interested again as the price is 30% off recent highs. The company owns what is in my opinion one of the best brands in Australia and dominates the domestic retail honey market. There is the potential for significant uplift in sales to China over future years but this needs to be weighed up against supply risks including unfavourable weather and disease. Trading on a mid-teens price-to-earnings ratio (PER), I feel that the market is currently valuing this company on the conservative side.
Mayne Pharma Group Ltd (ASX: MYX)
Generic drug company Mayne Pharma has grown rapidly over the last few years. It has developed drug delivery technologies over 30 years and its strategy is to apply these to acquired drug portfolios. This appeals to me, as does Mayne's potential to achieve economies of scale as it increases manufacturing throughput. On the other hand, I suspect that competition will erode prices over time and the company has recently been confronted by the U.S. Department of Justice over pricing. However, this enquiry relates to just a small proportion of the company's revenue base and so the recent share price weakness could be a buying opportunity.
Vocus Group Ltd (ASX: VOC)
Vocus shares have fallen over 50% in recent months following leadership changes and as the ongoing switchover to the NBN casts uncertainty over the future of the telco industry. But a significant part of Vocus' business is from the corporate sector which is less likely to be impacted by the NBN. Furthermore, the NBN simply replaces Telstra's copper network and so essentially Vocus is just switching from one monopoly supplier to another. I think the risk of customer churn during this process is relatively low as it will happen largely in the background from the customer's point of view.
TPG Telecom Ltd (ASX: TPM)
TPG is in a similar situation to Vocus regarding the NBN as it also has a significant corporate arm. Under the leadership of founder and major shareholder, David Teoh, TPG has generated significant shareholder value over many years. The company recently announced that it is expanding into Singapore which strikes me as sensible given investment opportunities in Australia are perhaps more limited today than they once were. TPG is priced at a slight premium compared to Vocus, but neither look excessively expensive considering their track records.
Blackmores Limited (ASX: BKL)
Blackmores generates outstanding returns on capital thanks to the power of its brand which enables it to command premium prices for what are essentially generic products. After an outstanding 2016, Blackmores has hit a speed bump this year as changes to Chinese export channels impacted sales in the first quarter. Like Capilano, China potentially represents a large opportunity for Blackmores over many years and I expect sales to the Middle Kingdom to resume their upward trajectory over time. However, the stock still looks a little pricey based on my expectations for 2017.
