Mid Cap Stocks
Mid Cap stocks, are defined as having a capitalization of between $2 billion to $10 billion.
The capitalization of a company is figured by multiplying its stock price by the number of shares it has issued, or shares outstanding.
Most often, these are established businesses sandwiched between slower growth Blue Chip stocks and faster growing Small Cap stocks.
Some stock investors choose the middle ground and invest in these stocks — seeking a trade-off between volatility and return. In so doing, they give up the potential return of Small Cap stocks.
Most mid cap stocks are simply small-caps that have grown bigger. Additional growth makes them the stepping-stones to becoming large-cap businesses. Part of growing is obtaining additional financing to fuel expansion. Mid-caps generally have an easier time of it than small-caps do.
While mid-caps have an advantage over small-caps when it comes to raising funds, their advantage over large-caps amounts to earnings growth. Smaller in size, mid-caps often have yet to reach the mature stage where earnings slow and dividends become a bigger part of a stock's total return.
Possibly the most overlooked reason for investing in mid cap stocks is the fact that they receive less analyst coverage than large-caps. Some of the best performing stocks historically have been unloved companies that suddenly became loved, producing the institutional buyers necessary to move their price higher.
Some call this the "money flow." Call it what you will, institutional support is vital to a rising stock price. In the end, investing in mid-caps makes sense because they provide investors with the best of both worlds. Small-cap growth combined with large-cap stability.
One of the beautiful things about mid-cap stocks is that you're investing in businesses that are generally profitable, have been for some time and possess seasoned management teams.
Given the unpredictability of business, a strong balance sheet can help companies survive the lean years. Because mid-caps tend to have stronger balance sheets than small caps, this reduces risk while providing superior returns to large-caps.
When investing in mid-caps, you are in a sense combining the financial strength of a large-cap with the growth potential of a small cap with the end-result often being above-average returns.
Almost any of the stock trading strategies can be used when trading theses stocks.
However value investing is very commonly used with Middle Capitalization stocks.
And Breakout trading, focusing on growth stocks is also a profitable technique.
The Index that measures the Small Cap's in the stock market, is the S&P 400.
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