Mid-cap stocks are those shares coming from public companies that have market capitalization around $1 billion to $5 billion. Usually, some people also prefer companies with a $10 billion market capitalization also as a mid-cap stock. Meanwhile, the market itself defines as the number of shares from a particular company time the stock price. These stocks are popular around the stock investor since there are several benefits that become reasons to purchase mid-cap stock.
Ways to Purchase
To purchase individual stock, you have to research each of the public companies. That way you can decide with your own consideration which are the good stocks between those companies.
Besides, you also have the chance to find things that stock analysts have overlooked. Yet, this process requires a certain level of expertise and also time.
Reasons to Purchase
To diversify your portfolio, you have to have some percentage of these mid-cap stocks. For the amount of the stocks you own, you can decide by yourself according to your asset allocation and investment goal.
There are no specific rules saying how much should someone own mid-cap stock to diversify their portfolio. Here are the reasons to purchase mid-cap stocks.
Business Cycle Expansion
These are the companies with a high chance of expansion phase. They have stable growth during the low-interest rates and cheap capital.
Consequently, the managers in these companies can get a low-cost loan whenever the demand rises. They grow through investment in mergers, acquisitions, or capital equipment.
Better Than Small Cap
It is less risky than small-cap companies. During the economic downturn, they less likely to go bankrupt.
Doing research before purchasing these stocks are the most essential process since these companies have different earnings and growth potential.
Some of these companies remain a mid-cap stock even if their business model prohibits them to grow larger. These companies usually do not want to grow larger or currently meeting the demand for their existing products.
Or, there are mid-cap companies that have the same potential growth as the smaller companies. These are usually companies about to announce new products or acquiring their competitors.
Outperform Large and Small-Cap
Over the 10 years, there are proofs that mid-caps have been successfully outperformed large and small-cap. For instance, the S&P MidCap Index returned $2,684 for every $1,000 invested. At the same time, the S&P 500, which is mostly large-cap, returned $2,678.
Also read: Types of Market Cap and The Importance
