It's easy to fixate on the market's most popular plays, limiting portfolio exposure to Dow 30 components, FAANG stocks, and widely held S&P 500 members while missing out on superior returns in under-the-radar plays that attract far less media coverage. Investors may see these stocks pop up on their screens, but they often ignore these opportunities because the company doesn't sound familiar or they have no clue about the firm's business model.
This happens often with mid-cap companies that have that outgrown their small-cap status, expanding profitable businesses through a healthy growth curve and stable history of successful execution. The early bird catches the biggest worm with these lesser-known issues because Wall Street and media coverage eventually play catch-up, bringing in a large supply of weak hands that can short-circuit perfectly healthy uptrends.
The three stocks featured in this review hold mid-cap status, with market caps between $2 billion and $10 billion, and are trading at or near all-time highs even though their company names and business models don't ring any bells. Of course, not all of these are in perfect positions to buy at the moment, but the exercise should illustrate how taking the time to research these stocks can benefit your bottom line.
TopBuild Corp. (BLD) installs and distributes insulation and other building products through 200 branches in 40 states. It came public near $20 in July 2015 and topped out at $36.36 in September, marking resistance ahead of a March 2017 breakout that attracted widespread buying interest. The stock posted a series of higher highs and higher lows into June 2018's all-time high at $87.21 and reversed, entering a steep correction that hit a 22-month low in December.
The 2019 recovery wave unfolded at the same trajectory as the prior decline, stalling within 25 cents of the 2018 high in May. The stock has spent the past four weeks pulling back in a rounded correction that may be carving the handle of a cup and handle pattern. A breakout would be significant, with a measured move targeting a lofty $133, but a test at the 50-day exponential moving average (EMA) and May 7 gap prior to a breakout makes perfect sense.
Mirati Therapeutics, Inc. (MRTX) researches and develops drug therapies that intervene in the genetic and immunological aspects of cancer. The stock entered a strong uptrend in September 2013 after coming public in July and continued to gain ground into the 2015 peak at $52.00. Aggressive sellers then took control, initiating a steep decline that cut through the IPO opening print in June 2016. It settled near $4.50 but broke support a year later, dropping to an all-time low at $2.70.
The subsequent uptick exploded to the upside in September 2017, finally reaching the 2015 high in June 2018. It broke out immediately but tested new support into February 2018 and has just posted an all-time high at $102.59. It can often take time for a strong uptrend to clear psychological resistance in the triple digits, so it makes sense to keep your powder dry until price action ejects toward $110.
PROS Holdings, Inc. (PRO) provides software and automation solutions for a broad variety of business objectives. The company came public at $12.50 in June 2007 and topped out at $20.71 in December. It posted an all-time low at $3.03 during the bear market and turned higher into the new decade, breaking out to a new high in 2013. That rally posted strong returns into the 2014 high at $41.35, ahead of a steep downturn that ended in the single digits in 2016.
Committed buyers took control in February 2016, grinding out a 100% retracement into the 2014 peak in the summer of 2018. The subsequent downturn finally settled in the upper $20s at year end, ahead of a bounce that completed a multi-year cup and handle breakout on April 26. The nascent rally has added about 16 points so far, well below the cup and handle pattern's 32-point measured move target in the mid-$70s.
The Bottom Line
These under-the-radar stocks could offer stronger returns than the widely held issues touted in the financial media.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.