While many people point to the FAANG stocks as the companies that have driven the market higher during the long bull market, it is important to remember that for the past 18 months the stock market has essentially gone nowhere. With the China trade issues generally pushing the market one way or another, it has become more difficult to gain alpha and passive indexing is not working this year, as active managers are beating the indexes.

One area that continues to outperform, as it has for years, are the mid-cap stocks between $2 billion and $30 billion in market capitalization. Jefferies equity strategist Steven DeSanctis did a deep dive on the mid-cap arena, and while flatly stating that many are very expensive, as small and large-cap managers have been buyers as well, he does think there are some great mid-cap companies on the Jefferies Franchise List of top stocks to buy.

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We screened the 13 mid-cap companies that are on the Franchise Picks List, looking for those that may have seasonal advantages and also pay dividends. We found five that look like great picks for the fourth quarter and 2020, as earnings next year could rise with 2% GDP growth, and continued interest rate cuts also could provide a possible tailwind for the top companies.

Casey’s General Stores

Jefferies has remained positive on this hot consumer staples stock. Casey’s General Stores Inc. (NASDAQ: CASY) and its subsidiaries operate convenience stores under the name Casey’s General Store in approximately 10 Midwestern states, including Iowa, Missouri and Illinois.

The company operates approximately 1,930 such stores, as well as two distribution centers through which it supplies grocery and general merchandise items to its stores. Its general store typically carries over 3,000 food and nonfood items. The stores sell regional brands of dairy and bakery products, and approximately 90% of the stores offer beer. Its nonfood items include tobacco products, health and beauty aids, school supplies, housewares, pet supplies and automotive products.

Shareholders receive just a 0.86% dividend. The Jefferies price objective for the shares is $194, and the Wall Street consensus price target is $177.27. The stock closed trading at $162.34 on Monday.

Hasbro

Toys and games rarely go out of favor, and with Christmas right around the corner, the timing to buy looks solid. Hasbro Inc. (NASDAQ: HAS) engages in the provision of children and family leisure time products and services with a portfolio of brands and entertainment properties. The company’s brand names include Littlest Pet Shop, Monopoly, My Little Pony, Nerf, Play-Doh and Transformers.

The Entertainment and Licensing segment conducts movie, television and digital gaming entertainment operations, including the operations of Hasbro Studios and Backflip, as well as engages in the out-licensing of trademarks, characters and other brand and intellectual property rights to third parties for digital gaming and consumer products.

In the past, the analysts said this about the company:

The company partners with major content owners to license brands for toy and collectible products. The company’s licensing of its own brands to other CP category specialists has directly benefited consumer engagement and profitability. Partnerships with key media brands on a global basis imply multi-level growth. We expect greater franchise economics from investments in films/TV.

Investors receive a solid 2.25% dividend. Jefferies has a $135 price objective, while the posted consensus target is $125.79. The stock was last seen trading at $120.90 a share.

This somewhat larger mid-cap company is actually a very solid value play. Kennametal Inc. (NYSE: KMT) develops and applies tungsten carbides, ceramics, super-hard materials and solutions for use in metal cutting and mission-critical wear applications to combat extreme conditions related with wear fatigue, corrosion and high temperatures worldwide.

The company’s product offering includes a selection of standard and customized technologies for metalworking applications, such as turning, milling, hole making, tooling systems and services for manufacturers of transportation vehicles and components, machine tools, and light and heavy machinery; airframe and aerospace components; and energy-related components for the oil and gas industry, as well as power generation.

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Kennametal investors receive a 2.72% dividend. The stunning $50 Jefferies price target compares to the much lower consensus target of $36.32. The shares closed most recently at $29.25.

KeyCorp

This top mid-cap bank makes good sense for the fourth quarter and into 2020. KeyCorp (NYSE: KEY) operates as the bank holding company for KeyBank National Association, which provides deposit, lending, cash management and investment services to individuals, small and medium-sized businesses.

The company also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets banner.

The top managers are attracted to the larger regional banks, as valuations look very reasonable and cost-saving plans are helping to make forward estimates look very achievable. With overall credit remaining solid, earnings and loan deposit and fee growth all are positive metrics for the bank.

KeyCorp offers investors a very solid 4.25% dividend. Jefferies has set its target price at $20. The posted consensus price target is slightly lower at $19.39, and shares closed Monday at $17.59.

Williams Companies

This top energy company is also a solid pick for more conservative accounts. Williams Companies Inc. (NYSE: WMB) is now largely a pure-play domestic natural gas infrastructure company that has a 74% ownership interest in its underlying master limited partnership, Williams Partners.

The company has a lower risk, fee-based business model with some volume sensitivity. Natural gas demand continues to be driven by liquefied natural gas (LNG) exports, power generation and industrials. In addition to steady demand growth, Marcellus production and associated gas in the Permian are expected to continue to be primary supply drivers.

Shareholders receive a very sizable 6.58% dividend. The Jefferies price target is $32. The consensus target is $30.05, and the shares closed Monday at $23.12.

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These five outstanding ideas from the mid-cap team at Jefferies are decidedly more conservative. Given their strong and consistent dividends, they offer investors excellent total return potential and a safer way to play the stock market for the rest of 2019 and into next year.

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