In a sideways market like the one we’re currently in, investors are looking for breakout stocks to watch wherever they can find them. These “momentum stocks” push up against levels of support or resistance. You want to watch them closely.
Historically, when equities emerge from a bear market, mid-cap stocks lead the way. Some may question that thesis this year. The S&P 400 Mid Cap Index is up 2.8% this year. That’s lagging the S&P 500 index, which is up over 7.5%. But the index has heavy exposure to bank stocks which took a beating in March.
But looking out over a longer timeframe, the thesis holds up. That means that these are the stocks to watch for a breakout.
In coming up with the breakout stocks to watch for this article, I used a simple stock screener to look for mid-cap stocks that were trading within 20% of their 52-week highs or lows. I also set the screener for stocks that had an upside of at least 25%.
|WH||Wyndham Hotels & Resorts||$68.95|
|AAP||Advance Auto Parts||$128.21|
|LEVI||Levi Strauss & Co.||$14.91|
|MPW||Medical Properties Trust||$8.31|
|NFG||National Fuel Gas||$55.03|
Wyndham Hotels & Resorts (WH)
Wyndham Hotels & Resorts (NYSE:WH) is on breakout alert for more reasons than just that revenge travel shows no signs of abating.
In the last quarter, most hotel chains posted strong earnings and Wyndham was no exception. The company posted earnings per share of 72 cents was higher than analyst expectations and better than the prior year.
According to Nerd Wallet, hotel prices were up 8.3% in March versus the prior month. That is higher than many other travel categories.
And in the next five years, analysts forecast Wyndham will have average EPS growth of around 10% per year. Speaking of analysts, since the company last reported earning in February, analysts are boosting their price targets for WH stock.
This remains a bifurcated market and while some consumers will continue to travel, it would seem likely that the party in travel will end, but it doesn’t seem that will be the case in 2023.
So with WH stock trading at 17x forward earnings and with a growing dividend, it’s a stock to consider for breakout potential.
Advance Auto Parts (AAP)
Banks and finance companies are tightening their lending standards. And while the infrastructure is not ready for it, auto manufacturers are pivoting away from internal combustion engine cars.
For many consumers, that means that any plans to buy a new (or new to you) vehicle are likely to be put on hold. That means making sure your existing vehicle is in sound working order.
AAP stock is down 43% in the last 12 months, largely because investors believed the business model was threatened. That may be true someday, but in the last quarter the company beat on both the top and bottom lines and both numbers were higher on a year-over-year basis.
Analysts are guiding for lower earnings this year, and investors will learn more when the company reports earnings in May. But at 12x forward earnings and with a dividend yield that is currently at 4.68% (and with an annual payout of $6 per share), AAP stock seems undervalued.
The stock is currently pushing up against some resistance around $128. If it can breakout from that, the stock could begin reclaiming earlier highs.
Levi Strauss & Co. (LEVI)
Next on this list of mid-cap breakout stocks to watch is Levi Strauss & Co. (NYSE:LEVI). The company reported earnings in April and beat on the top and bottom lines. But investors have been in a selling mood and the stock is down 17% since that point.
But with a forward P/E ratio of just 11.7x, the sell-off seems overdone. The company recorded “record-breaking” revenue through their direct-to-consumer (DTC) business.
Management said it expects DTC to account for approximately 42% of its total global revenue in 2023. DTC is one part of the company’s ongoing commitment to a digital strategy. Overall, the company noted a 14% increase in total e-commerce sales.
Levi’s is an iconic brand and there’s nothing that suggests investors won’t flood back to the stock once overall economic conditions improve.
On two occasions in 2023, investors have tried to push LEVI stock past its 52-week high. If you believe the third time is the charm, now is a good time to start accumulating shares.
Plug Power (PLUG)
When it comes to breakout stocks to watch, you frequently have to follow the philosophy of skating to where the puck is moving. That’s the case for Plug Power (NYSE:PLUG) which is one of the pure play companies trying to capture market share in the global hydrogen market.
Few industry experts question hydrogen’s bona fides as a source of clean energy. For many reasons, hydrogen has never achieved the acceptance and scalability of other renewable energy sources.
Plug Power is an entrenched name in this space. The company is transitioning from providing hydrogen fuel cells for companies like Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN) to being a vertically integrated player in the hydrogen ecosystem.
Plug Power probably won’t be profitable until 2025, but if you’re looking for exposure in this growing market, PLUG stock is one to have on your watchlist.
Medical Properties Trust (MPW)
Real estate investment trusts present investors with a business model that allows for outsized dividend payments.
Medical Properties Trust (NYSE:MPW) is no different. The dividend yield is currently 14.09% with an annual payout of $1.16 per share. And trading at 5.4x earnings, MPW is undervalued.
But with real estate under pressure, it’s important to know that not all REITs are the same. Medical Properties Trust specializes in the acquisition and development of healthcare facilities.
They have an international portfolio that includes long-term acute care hospitals and rehabilitation hospitals.
With growing concern over the commercial real estate market, investors can take comfort in the company’s business model that includes long-term leases with high-quality tenants.
The Alabama-based company’s portfolio includes over 400 properties worldwide. And the company is well positioned to benefit from the continuing aging of our global population.
PENN Entertainment (PENN)
In 2022, I expressed some interest in FuboTV (NYSE:FUBO) because the company was attempting to be an integrated sports book and streaming service.
Although it doesn’t have a streaming component, the reason to include PENN Entertainment (NASDAQ:PENN) as one of my stocks to watch is its integration of casino gaming and sports betting.
I know this isn’t new, but it bears highlighting. The brick-and-mortar casino business is highly competitive and Penn has geographic diversity. Its lack of exposure to Macau was a benefit during the pandemic. Casino traffic is growing as pandemic restrictions ease.
PENN stock is down 23% in the last year and the stock could have further to fall if the economy continues to weaken. If that’s the case the stock’s 22x valuation should come down. But analysts give the stock a 36% upside which makes it a strong choice as a potential breakout stock.
National Fuel Gas (NFG)
Rising crude oil prices are overshadowing the growing demand for natural gas. And that’s the reason that National Fuel Gas (NYSE:NFG) makes this list. The company engages in the production, gathering, transportation, storage, and distribution of natural gas.
In its February 2023 earnings report, the company beat expectations for both revenue and earnings. And both numbers were better on a year-over-year basis.
NFG stock is down over 25% in the last year. But typically earnings growth is one of the single best predictors of stock price growth. Which means that the stock which trades at around 5x earnings is undervalued at this time.
And investors also benefit from a secure dividend. In fact, National Fuel Gas is a dividend king having increased its dividend for the last 51 years.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.