What are mid-cap stocks?

What are mid-cap stocks?

Some investors like to find a middle ground between two extremes. Mid cap stocks are an alternative to the most volatile or least risky options.
By: Jonah Keri
Jonah Keri
Jonah Keri is a trader and analyst who spent 11 years at Investor's Business Daily covering the markets. He… read more.
Updated: Jan 22, 2022
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5 min read

Mid-cap stocks can give you the best of both worlds. In this lesson, you’ll learn what mid-cap stocks are, their key characteristics, and where you can buy them. You’ll also find examples of some promising mid-cap stocks in which you might want to consider investing.

I. What are mid-cap stocks?

Mid-cap stocks are exactly what they sound like: stocks with larger market capitalisations than small-cap stocks and smaller market caps than large-cap stocks. A mid-cap stock is typically defined as possessing a market cap of $2 billion to $10 billion.

II. Why do investors look for mid-cap stocks?

Investors like mid-cap stocks because they offer a balanced investment approach. Small-cap stocks offer lots of potential growth, but also can be quite volatile. Large-cap stocks offer lots of stability and name recognition, but often lag behind their smaller-cap competitors in terms of potential size of gains. Mid-cap stocks offer a happy medium between those two stock types. Mid-cap stocks come in many different flavours, so you can pick mid-cap stocks that fall under the growth stock, value stock, or dividend stock categories to build a portfolio that works for you.

III. What are the defining characteristics of mid-cap stocks?

1) Mid-sized market capitalisation

We mentioned before that mid-cap stocks typically sport a market cap of $2 billion to $10 billion. The next level down is considered a small-cap stock, while the next level up is considered a large-cap stock.

2) Company growth potential

Mid-cap stocks are often still relatively early in their growth cycle. That means investors who buy mid-cap stocks could benefit from an increase in earnings growth, revenue growth, economies of scale, productivity, and market share.

3) Potential for rising stock price

Mid-cap stocks typically have a proven track record, in that they’ve grown from small-cap stocks into larger entities. Despite that established track record of growth, they offer potential for more. Remember that many of the most successful large-cap stocks in market history were once mid-cap stocks before heading higher.

4) Balance between growth and stability

In a perfect world, investors can maximise their potential to make money while also minimising their risk. Mid-cap stocks can be a viable option when it comes to managing those twin goals, since they tend to be less volatile than small-cap stocks but also earlier in their growth cycle than most large-cap stocks. While nothing is a sure thing when it comes to investing, these traits give mid-cap stocks the potential to achieve superior earnings growth and stock price appreciation if the markets move in the right direction.

IV. Here are some examples

If you want to invest in mid-cap stocks, then here are a few of the best-known companies around that fit the bill. It’s important to carry out your own research before investing your money, but here are some pointers for where to start.

1) Universal Display (OLED)

Universal Display develops and manufactures modern light emitting diode (LED) technology used by display and lighting companies. The stock has a $7.8 billion market cap, having reached an all-time high in September 2019. It fell sharply during the COVID-19 market correction, then rallied nearly 60% from its mid-March lows to its early-June levels.

2) HealthEquity (HQY)

HealthEquity is one of the leaders in the US health savings account space, with a special IRS designation that allows it to be the custodian of health savings accounts no matter which bank holds the funds you use to pay for healthcare. Many US healthcare stocks have rallied sharply during the pandemic given heightened demand in the industry, and HealthEquity is no exception. The stock, which carries a $4.7 billion market share, rose about 60% from mid-March to early-June 2020.

3) Fox Factory (FOXF)

Fox Factory designs, builds, and sells high-performance suspension products used in off-road vehicles such as ATVs, snowmobiles, mountain bikes, and motorcycles. The stock has a $3.4 billion market share and has been incredibly resilient despite the coronavirus-induced market downturn, surging to an all-time high in early June 2020.

4) Kodiak Sciences (KOD)

Kodiak Sciences is a biotech company that makes products and platforms used to prevent and treat the leading causes of blindness. The stock has a $2.7 billion market share and has rebounded to within 30% of its recent January 2020 peak during the post-coronavirus recovery.

V. How do I find mid-cap stocks?

Numerous investment websites offer screening tools that let you search for mid-cap stocks based on any fundamental or technical parameters you like. You can also find the best mid-cap stocks right here, with our lists of top-performing mid-cap stocks that we publish every month.

You now have a better understanding of mid-cap stocks, their key traits, and what makes them attractive investments. Click to check out our next lesson, on large-cap stocks.

Fact-checking & references

Our editors fact-check all content to ensure compliance with our strict editorial policy. The information in this article is supported by the following reliable sources.

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Jonah Keri
Financial Writer
Jonah Keri is a trader and analyst who spent 11 years at Investor's Business Daily covering the markets. He now writes about stocks, cryptocurrencies, and other… read more.

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