Three UK mid-cap stocks that should prove to be long-term winners

Looking beyond immediate uncertainty can be challenging. The Covid-19 virus is causing considerable volatility across markets and social-distancing policies have had significant short-term effects. Nevertheless, we remain optimistic about the outlook for medium-sized British companies over the long-term.

UK mid-caps provide investors with a means to access some of the country’s finest businesses earlier in their growth trajectory; by the time a stock becomes a member of the blue-chip FTSE 100 index, it is often mature and grows only slowly.

While the FTSE 250 mid-cap index can be more volatile in the short term, attractive growth opportunities remain and there are many examples of companies where we feel the market may have overreacted. Our focus remains on identifying companies that not only have the potential to be long-term winners but could also emerge from this turmoil stronger than before. 

The shift to online shopping

Several retailers are in difficulty: the move to online shopping has made retail hugely competitive. However we believe that Dunelm (LSE: DNLM), the No.1 UK home-furnishings retailer, is one of the exceptions. To survive and thrive as a retailer, data and technology are key. The group’s newly upgraded website was already benefiting from significant investment, with online sales up by over 30% in the first 10 weeks of 2020, and Dunelm was taking market share. 

The stores are currently closed but Dunelm has reopened its website after a temporary closure to ensure the safety of their staff while maintaining customer service. We are confident that Dunelm is well placed to keep taking market share from competitors struggling to match it on product, technology, or marketing spend. Dunelm’s management was one of the first to take a voluntary pay cut when the crisis broke – a sign of true leadership.

A unique corporate culture

We have owned Softcat since it floated in 2015, and it has consistently delivered. Long-term success stems as much from the culture of a company as from the products, and Softcat (LSE: SCT) has maintained its unique culture even while delivering stellar growth. Customer service is key to standing out from the competition for a supplier of bespoke Information Technology (IT) products and infrastructure. Softcat excels in this respect, as evidenced by strong results and awards. 

It is well placed to come out of this downturn with even stronger customer relationships and is likely to have gained new clients as working from home has evolved from an option to a necessity for many of us. 

Future (LSE: FUTR) is a publishing group that owns websites, events and online magazines with over 57 million worldwide users every month. Future provides authoritative information in spheres such as technology, video gaming and photography. Technology is at the core of the huge success that Future has enjoyed under current management, and it has been acquiring businesses to add to the roster. As with Dunelm, we believe the current situation will have led to greater website traction as so many of us sit at home. We expect further acquisition opportunities to arise as weaker competitors struggle.