Tips for Mid Cap Stocks Investment – Concept, Tips, Benefits, FAQs & moreLast Updated Date: Aug 11, 2022
Check out Tip for Mid Cap Stocks Investment here.
Mid-cap stocks are always the most under-researched and under-rated shares. There is a common perception that these stocks are highly risky.
However, the truth is different from this perception. Since these stocks are under-rated, their prices are also lower than the actual value/ intrinsic value.
So, if you can identify the stocks which can increase in price in future earlier than the market, you can earn great profit from the same.
In this article, we will discuss mid-cap stocks, their features, and benefits, and check how to make a profitable investment in these stocks.
What are Mid Cap Stocks?
Mid-cap stocks are the stocks that fall between the large-cap and small-cap stocks by market capitalization.
According to a general definition or classification by Nifty and Sensex, the stocks which rank 101st to 250th according to market capitalization are the mid-cap stocks.
The market cap of these stocks varies from Rs.5000 crores to Rs.20000 crores.
The features of mid-cap stocks include –
Diversity of Stocks
Firstly, you get a lot of diversity with mid-cap stocks. Since these stocks are bordering both large-cap and small-cap, there is a lot of variety in it.
While some of the stocks are more stable as they are on the verge of becoming large-cap.
On the other hand, others have just transformed into a mid-cap stock, and thus the volatility, risk factors are high and the growth potential and margin too.
Mid-cap stocks have the potential for growth as they are yet to mature like large-cap companies. They are still growing but the rate of growth is comparatively lower than the small-cap companies.
So, if you are looking for moderate growth stocks with average risk, then these stocks are a great option for your portfolio.
The risk factor in mid-cap stocks is generally moderate. It is neither too high like the small-caps nor too low like the large-caps.
The moderate risk helps the risk-averse investors to invest in these stocks and earn a substantial profit.
These stocks are liquid compared to small-cap stocks. You can see trading volumes in the stock market while trading or investing in these stocks.
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Tips for Mid Cap Stocks Investment
While investing in mid-cap stocks, you need to check the following factors thoroughly –
Profitability of the Company
Firstly, you must check the profitability of the company. Generally, the mid-cap stocks are profitable.
They are in their young adulthood, where they are growing, efficient management compared to the small-caps where everything so volatile.
They are here in the market for quite some time now and the volatility is less. All these gather to make the company profitable in long run.
You must check how much profitable the stock can be in the future.
Financial Ratios – Tips for Mid Cap Stocks Investment
After profitability, you need to check the financial health of the company. For the same, you need to analyze the ratios like current ratio, book value, and others.
If the current ratio is more than 2 then a mid-cap company is considered to be a good one. As it signifies that the company is in a position to pay off its current liabilities.
Then the book value of the company must be more than its total debt.
Another useful factor to consider while investing in mid-cap stocks is growth. Here you need to consider the growth of revenue and earnings of the company.
These two are the most important factors. In recent years, it has been observed that the mid-cap stocks are outperforming the large-cap as well as the small-cap stocks.
Stock is Over-Priced or Under-Priced
While investing in these mid-cap stocks, you need to check whether the price of the stocks is reasonable or not.
You need to check whether the stock is over-priced or under-priced. If it is overpriced, do not invest in it at that moment.
If you think the stock is rightly priced or under-priced, invest in it.
Brand – Tips for Mid Cap Shares
Check for companies that are building a brand name for themselves. If you do that, the risk of the company being wind up reduces. This in turn reduces the risk factor in your investment.
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Why invest in Mid Cap Stocks?
Mid-cap stocks are great investment options if you are looking for –
- Growth of your investment in the long-term. As mid-cap stocks are the stocks of growing companies, you can expect the price of the stocks to increase significantly in the future. They have not yet reached the saturation point so they can expand and grow.
- These stocks are of those companies which are less volatile.
- There is ample information available about these companies compared to the small-cap companies.
- These stocks are rarely analyzed and under-rated, so they have great growth potential.
Tips for Mid Cap Stocks Investment – Conclusion
Mid-cap stocks can provide great returns if you find them out after thorough analysis. They have growth potential, less volatile, moderate to lower risk levels, and many more pros.
However, these stocks are under-rated and thus you need to do your research pretty well to find the best mid-cap stocks.
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FAQs – Calls for Mid Cap Stocks
Here are various FAQs on Calls for Mid Cap Stocks Investment –
Are mid-cap stocks highly risky?
No, mid-cap stocks have moderate risk. It is a complete misconception that these stocks are highly risky. It all depends on your research and investment skills.
Shall I invest in mid-cap stocks if I am looking for growth investment?
Yes, you can consider mid-cap stocks for growth investment. All mid-cap stocks are of growing companies.
However, you need to check whether the growth is becoming stagnant as it nears becoming a large-cap.
Are mid-cap stocks good for long-term investment?
Yes, mid-cap stocks are great long-term investment options. They have great growth potential and they are also moderate risk.
What is the saturation point in a company?
A company is considered to be saturated or reached the saturation point when it is not expanding further.
Why mid-cap stocks are under-rated?
The mid-cap stocks are under-rated or less analyzed because of the misconception that they are very risky. However, the risk factor in mid-cap stocks is moderate.
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