Mid-Cap Stocks

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 12, 2023

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What Are Mid-Cap Stocks?

Mid-cap stocks are classified based on their market capitalization, which refers to the total value of a company's outstanding shares. Companies with a market capitalization between $2 billion and $10 billion are considered mid-cap stocks.

The market capitalization range for mid-cap stocks is broader than that of small-cap and large-cap stocks, making them a diverse category that includes companies from various industries.

Mid-cap stocks can offer investors exposure to companies with significant growth potential, as these companies are often expanding and developing new products and services.

Additionally, mid-cap stocks can offer diversification benefits, as they often have a broad range of products and services and operate in different geographic regions.

Characteristics of Mid-Cap Stocks

Mid-cap stocks have unique characteristics that set them apart from other stocks in the market.

Market Capitalization Range

Mid-cap stocks have a market capitalization range between $2 billion and $10 billion, which positions them between small-cap and large-cap stocks.

This range offers investors the opportunity to invest in companies that have established a strong foothold in their respective industries but still have significant room for growth.

Risk and Return Profile

Mid-cap stocks have a risk and return profile that is generally higher than that of large-cap stocks but lower than that of small-cap stocks.

Mid-cap stocks can offer investors the potential for higher returns than large-cap stocks due to their higher growth potential but carry a higher risk than large-cap stocks due to their smaller size.

Growth Potential

Mid-cap stocks often have a significant growth potential due to their innovative business models and products, expanding market share, and increasing profitability.

These companies are often well-positioned to take advantage of emerging trends and opportunities in their respective industries.

Advantages of Mid-Cap Stocks

Investing in mid-cap stocks can offer investors several advantages, including diversification, higher return potential, and greater growth opportunities.

Portfolio Diversification

Mid-cap stocks can provide diversification benefits to investors' portfolios, as these stocks often operate in different industries and regions. Diversification can help investors reduce their overall portfolio risk by spreading their investments across multiple sectors.

Higher Return Potential

Mid-cap stocks can offer investors a higher return potential than large-cap stocks, as they are often in the early stages of their growth phase.

This higher return potential can come with higher risk, but for investors with a long-term investment horizon, mid-cap stocks can offer significant growth potential.

Greater Growth Opportunities

Mid-cap stocks often have significant growth opportunities due to their innovative business models and products. These companies are often at the forefront of new trends and technologies, positioning them for growth in their respective industries.

Risks of Investing in Mid-Cap Stocks

While mid-cap stocks offer significant advantages, they also carry risks that investors should consider.

Market Volatility

Mid-cap stocks can be more volatile than large-cap stocks, as they are often subject to more significant fluctuations in price due to their smaller market capitalization. Investors should be prepared for short-term volatility when investing in mid-cap stocks.

Liquidity Risk

Mid-cap stocks can be less liquid than large-cap stocks, meaning that investors may have difficulty buying or selling these stocks quickly. This lack of liquidity can lead to increased volatility and can make it difficult to enter or exit a position in a mid-cap stock.

Lack of Information Availability

Mid-cap stocks may not have the same level of coverage as large-cap stocks, making it difficult for investors to obtain comprehensive information about the company's financial health and future prospects.

This lack of information availability can increase the risk of investing in mid-cap stocks.

Advantages and Risks of Investing in Mid-cap Stocks

Investing in Mid-cap Stocks

Investors interested in investing in mid-cap stocks should consider several factors before making their investment decisions.

Fundamental Analysis

Fundamental analysis involves analyzing a company's financial statements, industry trends, and management quality to assess the company's value and growth potential. This analysis can help investors identify undervalued mid-cap stocks with significant growth potential.

Technical Analysis

Technical analysis involves analyzing the stock's price movements and trading volume to identify trends and patterns that can help investors make investment decisions. This analysis can be used to identify buying and selling opportunities in mid-cap stocks.

Consideration of Long-term Goals

Investing in mid-cap stocks requires a long-term investment horizon, as these companies may take several years to reach their full potential. Investors should consider their long-term investment goals and risk tolerance before investing in mid-cap stocks.

Final Thoughts

Mid-cap stocks offer investors a unique opportunity to invest in companies that are well-established but still have significant room for growth.

As with any investment, investors should conduct thorough research and analysis to understand the risks and potential rewards of investing in mid-cap stocks.

They are classified based on their market capitalization range, which positions them between small-cap and large-cap stocks. They offer advantages such as diversification, higher return potential, and greater growth opportunities.

However, they also carry risks, such as market volatility, liquidity risk, and lack of information availability.

Investors interested in investing in mid-cap stocks should consider several factors, such as conducting fundamental and technical analysis, considering their long-term investment goals, and maintaining a diversified portfolio.

Mid-cap stocks can be an excellent addition to an investor's portfolio, as they offer unique investment opportunities that may not be available in small-cap or large-cap stocks.

Mid-Cap Stocks FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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