‘Mid-cap’ stocks can be a good value
The term mid-caps refers to companies whose market capitalization is smaller than large, well-established companies, such as the blue-chip stocks, but larger than small, emerging growth companies. Many of the companies that fall into the mid-cap class are names you know. While there is no specific range that defines the market capitalization of a typical mid-cap company, many Wall Street investment professionals put the average market cap of these securities between $1 billion and $5 billion.Most mid-cap companies are far from being neophytes in the business community. Many are long past the early stages of their development and have already established themselves as key players in their respective industries. Unlike many of their large-cap brethren, most mid-cap companies dont pay dividends. Profits are usually reinvested in the business to keep it growing. Mid-cap companies, however, generally distribute more dividends to shareholders than small-cap companies.Mid-cap growth vs. valueMid-cap stocks, like their large-cap counterparts, can either be growth stocks or value stocks. Whats the difference between the two? Growth-oriented companies tend to have high price-to-earnings (P/E) ratios compared to the market, but investors believe their growth potential justifies the higher relative price.A value stock refers to the security of a company whose P/E ratio is low relative to the market and may offer good value. A companys stock price could be cheap for any number of reasons. For example, the industry in which it operates may be suffering, or the company itself may have problems.Since no one can say for sure whether mid-cap growth stocks will outperform mid-cap value stocks or vice versa, investors often diversify their equity assets among growth and value stocks. To diversify properly, however, takes a certain level of expertise and a good deal of time to regularly monitor both types of stocks.Why invest in mid-caps?There are many factors that make mid-cap companies worthy of long-term investment. Thanks to technological advancements over the past decade or so, a number of companies in this category can now achieve the same economies of scale as their large-cap counterparts. In addition, many mid-cap stocks are not followed by Wall Street securities analysts as widely as large, well-established companies. As a result, their growth prospects may not be fully reflected in their current stock prices. In fact, many investment pros believe some of the best values may be found in the mid-cap arena. Many mid-cap companies are also small enough to make dramatic changes to their business faster than most larger, well-established corporations, enabling them to pursue new opportunities as they arise. This is especially important in todays volatile economic environment.Who buys mid-caps?Mid-cap stocks are most appropriate for investors willing to tolerate above-average volatility. On the other hand, mid-cap stocks, particularly those with price/earnings ratios below the market average, are typically not as risky as small-cap equities.Mid-caps, like other equities, are best suited for investors with a long-term investment horizon. Ideally, they should be part of a diversified equity portfolio that already includes large-cap investments.Take the next stepBefore buying any mid-cap company, evaluate its fundamentals earnings potential, industry position, senior management and long-term business plan, and so on.Your financial adviser can help you research mid-cap stocks that make sense for your financial situation and investment goals.The accuracy and completeness of this material are not guaranteed. The opinions expressed are those of Fraser M. Horn and Dudley M. Irwin and are not necessarily those of Berthel Fisher or its affiliates. The material is distributed solely for information purposes and is not a solicitation of an offer to buy any security or instrument or to participate in any trading strategy. Provided courtesy of Fraser M. Horn and Dudley M. Irwin , Investment Adviser Representatives with Berthel Fisher in Edwards. Registered Representative of and securities offered through Berthel Fisher & Company Financial Services, Inc. (BFCFS). Member NASD/SIPC. 1st & Main Investment Advisors is independent of BFCFS.
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