The UK mid-cap equity market is filled with cutting-edge companies and exciting investment opportunities, many of which are more exposed to future growth drivers than larger companies in the FTSE 100.
However, the past few years have been a mixed bag for mid-cap stocks, with market uncertainty affecting domestically focused stocks particularly hard. Recent supply constraints have also led to a surge in inflation, which will no doubt remain a key focus for markets. Nevertheless, long-term performance has been healthy. Today, there is recognition that mid-cap UK companies are substantially undervalued, which could offer an attractive buying opportunity.
Watches of Switzerland – inflation-hedging through luxury retail
Despite a decline in overseas sales during the pandemic, luxury retailer Watches of Switzerland (LSE: WOSG) ended 2021 as one of the biggest risers in the FTSE 250, having gained almost 140% and trading more than four times its 2019 offer price. Consensus forecasts are for revenue in the coming 12 months to be more than double its pre-pandemic peak and earnings to increase almost four-fold. This is bolstered by the brand’s inflation-proofing potential – luxury watches are durable assets with higher demand than supply, and retailers can pass on cost pressures to their largely price-insensitive base of customers.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The retailer’s long-term growth prospects also look attractive. Sales of luxury watches in the US are 40% lower per capita than in the UK, providing Watches of Switzerland with a potential growth opportunity. The company has also just made its first foray into the $14bn European luxury watch market, thanks in part to its strong relationships with suppliers.
Dunelm – a cash-rich homeware champion
Dunelm (LSE: DNLM) is a leading homewares retailer with a long-standing reputation for offering high quality products at a reasonable price. It has consistently grown sales, predominantly through market-share gains. The company is differentiated by its scale, expertise and a supplier network that has been built up over many years. The refresh of its web platform in 2019 further enhanced its customer service offering and enabled it to produce excellent results during the pandemic.
The company is continuing to take market share across its multichannel offering while also expanding into adjacent categories, such as furniture. This, along with a store rollout programme, should enable it to continue growing the topline for many years to come. Dunelm has a net cash balance sheet and strong cash generation. This has resulted in two special dividends to shareholders within the last year alone – a trend we expect to continue.
Alpha FX – setting higher standards in FX
Alpha FX (Aim: AFX) provides foreign exchange services to corporate clients who are undertaking cross-border transactions with customers or suppliers. These services have seen increasing demand as the global economy has become more integrated in recent decades.
Alpha FX has a technology- and customer service-led approach in what has historically been a poorly-served sector, which has helped grow its client base ten-fold and revenue per client five-fold in the last ten years. Clients are supporting it in setting-up across the globe, which should continue to drive revenue growth. Its results have consistently beaten market expectations since it floated in 2017.
-
Reeves warned against property tax shake-up – 3 ways it could backfire on first-time buyersRachel Reeves reportedly has her eye on high-end property taxes in the upcoming Budget, but there are concerns a shake-up could unintentionally hamper those trying to get on the housing ladder
-
Average Brits want to retire five years before they can – who has the widest retirement gap?Brits are expecting to work for longer than ever but there are big disparities in the number of extra working years predicted. A small tweak could help close the gap
-
Pierre-Édouard Stérin wants to make France great againConservative billionaire Pierre-Édouard Stérin is seeking to lead a political and spiritual renaissance across the Channel. The planning looks meticulous
-
Global investors have overlooked the top innovators in emerging marketsOpinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Pinewood Technologies: a drive for growthPinewood Technologies’ platform is one of the best in the business. Investors should buy in
-
'EV maker Faraday Future will crash'Faraday Future Intelligent Electric is failing dismally to live up to its name, says Matthew Partridge
-
Investors should cheer the coming nuclear summerThe US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with folliesThe best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
A tale of two Reits – why performance matters for valuationAEW UK and Regional are two Reits that are valued very differently, despite a shared focus on properties outside London
-
Healthcare stocks look cheap, but tread carefullyShares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?
