Finance

Mid-Cap Stocks

Mid-Cap Stocks

Mid-Cap or Mid-Capitalisation is a term used to describe companies that have a market capitalization or market value between $2 and $10 billion. Mid-Cap Stocks fall between large-cap and small-cap stocks. The terms small-cap, mid-cap, and large-cap are used to describe the approximate market values of a company and can hence change over time.

Get complete FRM Online Course by experts Click Here

Features:

  • Diversity: Mid-cap shares lie in between small-cap stocks and large-cap stocks. They vary in terms of risks and returns. For instance, mid-cap companies that are nearing developmental stages offer greater stability than returns while some companies that have recently become mid-cap from small-cap have greater returns.
  • Growth potential: mid-cap companies have high growth potential and a high chance of growing their profitability, productivity, and market value. These companies are expected to become overnight successes during the bullish market and hence increase the investor’s returns.
  • Risk: Mid-cap companies are in the middle of the growth curve. Since they are in the growth stage, they are considered riskier than large-cap companies and safer than small-cap companies.
  • Liquidity: These stocks are more liquid in comparison to small-cap stocks. They are known amongst investors and hence are trustworthy.

Examples:

Some examples of mid-cap stocks are:

  • Escorts
  • Crompton Greaves Consumer Electricals
  • Relaxo Footwears
  • Polycab India
  • Deepak Nitrite

Advantages:

  • Growth potential: mid-cap companies have a better chance of raising money via credit than small-cap companies and therefore have a greater expansion and growth potential.
  • Returns: Since most of the midcap companies are in the middle of the growth graph, they have great value appreciation chances and have good dividends.
  • Low prices: A lot of mid-cap shares are often not analyzed resulting in less attention from large institutions and investors. Because of this, they tend to have low prices making it more affordable.

Risks:

  • Value trap: Value trap occurs when a company operates in low profits with limited cash flow consistently and cannot get out of this phase. The low-ranking mid-cap stocks are more likely to value trap and might go unused if the trend continues for a longer period.
  • Low resources: Mid-cap stocks are more prone to have less efficient managerial and organizational resources than large-cap stocks. Hence, even though they earn high profits and have value appreciation, they might not be equipped to utilize the same efficiently.
  • Financial Bubble: A mid-cap company’s exceptional performance can be because of an unstable financial bubble. Most of these companies, do not have the financial capacity to manage when the bubble pops.

Get complete CFA Online Course by experts Click Here

Conclusion:

Mid-cap is a term that describes companies and stocks which fall in between large-cap and small-cap. Midcaps fall in the range of $2 and $10 billion. This can change with the change in a company’s market valuation. These stocks have high growth potential and are well known among investors. They sit in the middle of the growth curve and have a lower price.

Author – Abha Shetty

About the author – Abha is a second-year BMS student and FRM level 1 candidate. She is very intrigued by the world of financial markets and hopes to master the art of investing and trading.

 

Related post:

Defensive Stock

Blue Chip Stocks

Market Timing?

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

4 + 10 =