Five factors to consider while exploring mid-cap stocks

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Five factors to consider while exploring mid-cap stocks

 Five factors to consider while exploring mid-cap stocks
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People often search for investment grounds where they can experience less volatility and gain from significant upside potential. Hence, investors seeking such balanced exposure can find comfort in mid-cap stocks, which offer a compromise between growth, risk, and volatility relative to large-cap and small-cap stocks.

Let us first talk about what mid-cap stocks are and their characteristics to understand them, which will help you take the right investment call. Further, this article by Kalkine Media® will discuss five factors investors need to watch while exploring mid-cap stocks.

What are mid-cap stocks?

From a technical perspective, mid-cap stocks are the shares of companies with a market capitalization ranging between C$ 2 billion and C$ 10 billion. As mid-cap companies have already been through high-volatile phases involving start-ups and early market stages, they are deemed very stable considering their proven abilities to survive in the complex market environment.

From an investment point of view, mid-cap stocks are associated with low risk due to their larger market capitalization (compared to small-cap stocks), as they have ample resources to explore and capitalize on business opportunities. Another reason investors with a low-risk appetite might consider medium-sized companies is that they have exhibited staying power in the past.

Investing in mid-cap stocks: Here are 5 things to keep in mind

1.    Volatility

Mid-cap stocks are less volatile than their smaller counterparts. The rationale behind this is that mid-cap companies possess the ability to stabilize their business performance due to their larger market size.

On the other hand, mid-cap stocks are considered volatile when compared to large-cap stocks. Hence, investors with moderate risk tolerance can look at mid-cap stocks with sound fundamentals and robust financial results.

2.    Do mid-cap stocks pay dividends?

The decision to pay dividends depends on a particular company. However, some mid-cap companies are steadily distributing dividends to provide value to shareholders. Hence, income-focused investors can explore such mid-cap stocks to build an additional income stream.

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3.    Growth prospects

Mid-cap companies have greater growth exposure than their larger counterparts, based on the understanding that they have more room to grow and emerge as large-cap players in the future, assuming favorable business dynamics and performance.

On the other hand, companies with smaller market capitalization offer higher growth exposure than mid-cap companies. When backed by healthy business operations and a favorable market environment, mid-cap stocks could expand their market size significantly, which might reflect their valuations and stock prices.

4.    Risk factor

Speaking of risk associated with mid-cap investing, these stocks are supported by more established business models and have a grasp on their respective industries. Due to these reasons, mid-cap stocks are less risky than stocks having a market capitalization below C$ 2 billion. Large-cap stocks belong to established companies with proven business performances and hence, involve less risk than mid-cap companies.

5.    How to invest in mid-cap stocks?

Both retail and institutional investors often overlook mid-cap stocks as they either target high-growth (small-cap stocks) or stable returns (large-cap stocks). Investors need to identify quality mid-cap stocks based on their risk-reward preference.

Bottom line:

The broader market this year has seen rallies one day and stocks tanking on the next. Investing in such an environment is fraught with uncertainties, however good a strategy an investor may employ. However, a long-term strategy works best to wade through such market upheavals. Traders need to do their analysis well not to lose money in the bargain.


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