We recently compiled a list of the 10 Best Mid Cap Value Stocks To Invest In. In this article, we are going to take a look at where Webster Financial Corporation (NYSE:WBS) stands against the other best mid cap value stocks to invest in.
Mid-Cap Stocks are Better in the Near Term
An easing cycle coupled with an upcoming election creates quite the environment for differing opinions to co-exist. On October 9, Jill Carey Hall, Bank of America Global Research head of U.S. small and mid-cap strategy and senior U.S. equity strategist, joined ‘Squawk Box’ on CNBC to discuss her bullish stance on mid-cap stocks, especially in the near term.
Hall stresses that small-cap stocks have been underperforming since the 50 basis point rate cut, going against historical expectations of small-caps performing well in such cases. She emphasized that investors are focused on stocks with stronger fundamentals and small-cap stocks are currently stuck in an earnings recession. We have yet to see a recovery season for small caps, the way we have been seeing it for slightly larger stocks, Carey adds.
Carey shares that mid-cap stocks are likely to be a “better hedge” in the near term, as they boast stronger fundamentals and have better earnings trends. Overall, she believes that mid-cap stocks have historically performed better than small-caps and are, therefore, a better area to target. She also emphasized that one rate cut is not going to solve the re-financing risk that small-caps, especially companies in real estate and tech, inherently come with.
She adds that investors must focus more on themes rather than specific sectors. However, with the current economic backdrop and a soft landing in sight, she advises investors to remain inclined towards stocks with positive revisions, higher quality, and stronger dividend yields, given that as the Fed continues to cut rates, money is expected to be driven more into equity income.
Carey also shares that the current economic environment has been weak but we may see acceleration after this quarter, keeping in mind that current GDP and jobs data have been “encouraging.” While she upholds an element of uncertainty, she remains focused on less risky and high-quality stocks. As investors look to the Fed as a catalyst for the market, high-quality stocks trading at discounted valuations are likely to reap greater benefits.
Our Methodology
To come up with the 10 best mid-cap value stocks to invest in, we used the Finviz stock screener. We set the market capitalization filter to range between $2 billion and $10 billion and the Forward P/E filter to under 15. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted primarily in ascending order of the number of hedge fund holders as of Q2 2024 picked from our database and secondarily in order of their forward P/E and market capitalization.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is Webster Financial Corporation (WBS) the best Mid Cap Value Stock To Invest In?
A modern office lobby with displays about online consumer finance offerings.
Market Capitalization as of October 28, 2024: $8.93 Billion
Forward P/E as of October 28, 2024: 9.77
Webster Financial Corporation (NYSE:WBS) ranks third on our list of the best mid-cap value stocks to invest in. The commercial banking corporation is headquartered in Connecticut, United States. The company offers a range of services including personal banking, business banking, wealth management, and commercial banking services.
The company boasts a thorough network of more than 200 banking centers across Connecticut, Massachusetts, Rhode Island, and the New York Metro area. The banking centers are home to 24-hour ATMs, offer notary and safe deposit services, and have relationship managers to assist customers.
Earlier this year in January, the company closed the acquisition of Ametros Financial Corporation. Following the transition, the business continues to operate under the brand names, Ametros and CareGuard. Ametros is one of the largest administrators of medical insurance claim settlements. Consequently, clients make use of the CareGuard platform to manage their existing medical care. The acquisition helped Webster Financial Corporation (NYSE:WBS) enhance its position as a growing source of affordable and long-term deposits.
Webster Financial Corporation (NYSE:WBS) is an investor favorite because of its expansion initiatives and strong financial performance. In the third quarter of 2024, the company generated $647.6 million in revenue, a solid feat amid a challenging economic backdrop. Quarterly net interest income reached $589.9 million, up from $587.1 million in Q3 2023. Additionally, average interest-earnings assets totaled $69.8 billion, up by 4% year-over-year. Overall, 42 hedge funds were bullish on the stock at the close of Q2 2024, according to the Insider Monkey database.
Diamond Hill Capital’s Diamond Hill Select Strategy stated the following regarding Webster Financial Corporation (NYSE:WBS) in its first quarter 2024 investor letter:
“Among our bottom Q1 contributors were Humana, Extra Space Storage and Webster Financial Corporation (NYSE:WBS). Self-storage real estate investment trust (REIT) Extra Space Storage and HSA-focused bank Webster Financial performed well at the end of 2023 as investors anticipated interest rate cuts and easier financial conditions in 2024. As this sentiment largely reversed in early 2024 against a resilient economic backdrop and still-elevated interest rates, real estate (and REITs broadly) and banks were pressured in Q1 (though it’s worth noting Webster Financial shares were modestly positive in the quarter). However, we believe Extra Space Storage has a high-quality, long-term franchise with an industry-leading operating platform that should position it well in the future. Similarly, we believe Webster Financial’s large HSA account platform and diverse deposit base is a strong competitive advantage in the current macroeconomic environment.”
Overall, WBS ranks 3rd among the 10 best mid cap value stocks to invest in. While we acknowledge the potential of WBS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WBS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
