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3 mid-cap stocks I’d buy in February

Electrocomponents (LSE: ECM) released a positive trading update this morning, revealing “strong revenue growth and improved profitability” for the four months ended 31 January. This shows that the number one global distributor for engineers is on track to deliver a step change in performance under its Performance Improvement Plan.

Now could be a good time to invest in the business, in my view. And there are two other mid-caps I’m also keen on right now.

Performance power

After posting 1% revenue growth in Q1 and 3% in Q2, Electrocomponents said growth accelerated to 6% in the latest period (which actually covers the four months to January 31), with all its regional hubs seeing positive trends. The company also confirmed it’s on track to meet its cost-savings guidance of £18m for the year — this having been upped at the half-year stage from previous guidance of £15m.

Electrocomponents is a well-established global leader and initiatives to improve the customer experience are driving sales higher at a good clip. Combine this with a foreign exchange tailwind from weakened sterling and the cost-cutting programme, and you’ve got a company set to deliver impressive earnings growth.

The City consensus for Electrocomponents’ current fiscal year is for earnings-per-share (EPS) growth of 55%. This puts the company on a pretty high price-to-earnings (P/E) ratio of 25.5 at a share price of 500p. However, a price-to-earnings growth (PEG) ratio of 0.5 indicates the P/E is great value for the earnings growth on offer, which is why I believe now could be a good time to invest in this £2.2bn mid-cap.

Market dominance

Auto Trader (LSE: AUTO) may not be a global leader like Electrocomponents, but it’s the UK and Ireland’s pre-eminent digital automotive marketplace. Over 80% of UK vehicle retailers advertise on

The company reported an 11% increase in revenue and 28% EPS growth for its half-year ended 30 September. It said: “Despite the current wider economic uncertainty, the board is confident of delivering its growth expectations for the second half of the year”.

Auto Trader sits just outside the FTSE 100, with a market cap of £4bn at a share price of 410p. Again, the P/E is on the high side, matching Electrocomponents’ 25.5, if you go with the more bullish analysts, as I’m inclined to do in this instance. The PEG is at the fair value level of one, but I believe the shares are worth buying at this rating on the basis of the degree of the company’s dominance in its market.

Lower-profile performer

Polypipe (LSE: PLP) is the UK’s largest manufacturer of plastic piping systems for heating, plumbing, drainage and ventilation. Most of the company’s revenue is generated in the UK but over 20% comes from abroad.

Polypipe posted a 31% increase in revenue and 48% EPS growth for its half year ended 30 June, helped by a significant acquisition in the second half of 2015. While mindful of the wider economic uncertainty, the company said its production processes enable it to flex quickly to changes in demand and that the board is confident the group will “continue to develop and outperform, whatever the market conditions”.

Polypipe has a market cap of £694m at a share price of 350p. The P/E is 14.4 and the PEG is 0.6, so I also see the shares of this lower-profile mid-cap as very buyable ahead of its annual results a week on Thursday.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Auto Trader. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.