Mid-Cap Stocks

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Blog Author :

WallStreetMojo Team

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya, CFA, FRM

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What Are Mid-Cap Stocks?

Mid-cap stocks are public companies' shares with a market capitalization between $2 billion and $5 billion. According to analysts, companies with a market capitalization of as large as $10 billion are also considered the mid-cap.

Mid-Cap-Stocks-1

Market capitalization is the measure of the company's market value, which is calculated by multiplying the an outstanding number of shares of the company with its stock price. It falls in the middle of the large-cap and small-cap stocks. The classifications are only approximations that may change over some time. Investors find the mid-caps appealing because they are expected to grow in the future and increase their profits, share in the market, and productivity.

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  • Market capitalization determines the company's market value. It is calculated by multiplying the company's outstanding shares with its stock price. It falls in the large cap and small cap middle.
  • The mid-cap companies stocks are underfollowed in the stock market compared with large-cap stocks. 
  • Mid-cap companies in the market are less risky and volatile than small-cap companies. Hence, if any economic declines arrive, the mid-cap company's bankruptcy is less likely. 
  • Investors believe the mid-caps are favorable as they are anticipated to grow and boost profits, market share, and productivity.

Mid-Cap Stocks Explained

Mid-cap stocks are the stocks of a company having a market capitalization between $2 billion and $10 billion. Typically, mid-cap stocks list is in the middle of their growth curve, with the expectations that the market share, profitability, and productivity will increase over time. As a result, it falls in the middle of large and small-cap companies.

The classifications are only approximations that may change over some time. For example, as the mid-cap companies are generally in their growth stage, they are considered less risky than the small caps (market capitalization of less than $1 billion-$2 billion). However, when compared with the large-caps, mid-caps have more risk.

Characteristics

Given below are characteristics of some of the best mid-cap stocks.

  1. Mid-cap is the concept or term given to companies having a market capitalization between $2 billion and $10 billion.
  2. The portfolio of the investor should be well-diversified. In that portfolio, some percentage of the mid-cap stocks or the mutual funds should also be there as they provide the balance of growth and stability.
  3. Investors find the value mid cap stocks appealing because they are expected to grow in the future and increase their profits, share in the market, and productivity.

Example

For example, XYZ Ltd. has $1000,000 outstanding shares in the market. The price of one share of the company is $4 per share. Market capitalization is the measure of the company's market value, which is calculated by multiplying the outstanding number of shares of the company by its stock price. So, the market capitalization of XYZ Ltd. is $4000,000 ($1000,000*$4). Since the market capitalization of XYZ Ltd. is $ 4 billion, which is between the ranges required for being a strong mid cap stocks company, i.e., between $1 billion to $10 billion, the stocks of XYZ Ltd. will be considered mid-cap stocks.

List Of Mid-Cap Stocks In NASDAQ

Below is the partial mid-cap stocks list on NASDAQ: -

Mid Cap Stocks List - NASDAQ

You may download the full list of NASDAQ Mid Cap stocks here.

Advantages

Let us look at the benefits of best mid-cap stocks in the market.

  1. During the business cycle expansion phase, mid-cap companies perform well as the growth is generally stable with the low-interest rates and cheap capital. Because of this, it becomes easy for mid-cap managers to get low-cost loans whenever required to fulfill the rising demand. As a result, they generally grow through investment in capital equipment, acquisitions, or mergers.
  2. Mid-cap companies in the market are less risky and less volatile when compared with small-cap companies. Therefore, if any economic downturn comes in, it is less likely that the mid-cap companies will go bankrupt. That is not the case with small-cap companies, which are more likely to go bankrupt in any economic downturn.
  3. When the data of the past years is seen, it is observed that the mid-cap stocks have outperformed when compared with both small-cap stocks and large-cap stocks, and small-cap trends are not expected to change anytime soon. Like the S&P mid-cap index gave $2,684 in return for every $1,000 amount invested by its investors.
  4. It is easier to get the data and information about the strong mid cap stocks than the small-cap companies because mid-cap companies have been present longer than the smaller companies, making it easier to get more information through research. Also, mid-cap companies have been in the business for a long time to avoid any small-cap companies' mistakes.
  5. Stocks of value mid cap stocks are underfollowed in the stock market compared with large-cap stocks. Therefore, it gives a huge opportunity to investors who make wise decisions for growing their investments quickly.
  6. In case the large-cap companies decide to buy the mid-cap companies, the investment in the mid-cap can give a good return if the switch is generous, as in that case, investors might get mid-cap shares converted to large-cap stock.

Disadvantages

Apart from benefits, the best mid-cap stocks have some limitations as follows.

  1. The mid-cap companies are not as stable as the large-cap companies. They do not have much capital to last through any economic downturn, making them riskier in the contraction phase of the business cycle. Also, they are usually focused on one business type or market type. They will also have to shut down their operations if the market disappears.
  2.  The return generated from investing in the mid-cap funds gives less return on the investment made than the small-cap funds.
  3. Mid-cap stocks generally suffer from liquidity constraints because of the smaller capital base of these companies.

Mid-Cap Stocks Vs Large Cap Stocks

Mid-caps are the ones that have a market capitalization between $2 billion to $10 billion whereas large caps have a market capitalization of more than $10 billion.

Mid-caps have more growth potential than large caps because large cap companies are already established ones operating for many years.

Large caps are less volatile than mid-caps.

Due to high demand of large cap stocks, it is very easy to buy or sell them compared to mid-caps. Thus liquidity is less for mid-caps.  

Frequently Asked Questions (FAQs)

Are mid-cap stocks a good investment?

Industry advisors believe that the mid-caps can generate better returns since they are faster to perform than large caps and more economically stable than small caps, providing a one-two hit in the growth search. In addition, investors interested in mid-cap stocks must look at the revenue growth quality during an investment.



How to invest in mid-cap stocks?

Investors must initially look at the revenue growth quality while investing. For example, suppose gross and operating margins increase simultaneously as revenues. It indicates the company is building better scale economies ensuing in higher profits for shareholders.


How many mid-cap stocks are there?

Nifty possesses a criterion mid-cap index known as the Nifty Midcap 50 that hosts the market's top 50 most traded mid-cap securities.

Are mid-cap stocks safe?

Usually, mid-cap stocks are less risky, have less volatility, and have less growth capability than small-cap. Moreover, they also have greater potential profits than large-cap stocks.