Stock Markets Fall, but These 4 Winners Keep on Winning
Investors want what's worked.
Many investors like to focus on the stocks of small, fast-growing companies. Others prefer the stocks of big, established companies that are household names. But even successful investors may overlook a big part of the stock market: mid-cap stocks.
Like Goldilocks’ porridge, mid-caps are the not-too-big, not-too-small stocks that are “just right” for investors who want the combination of growth with lower volatility that the best mid-cap stocks offer. And if your portfolio holds a lot of small caps or large caps (or both), adding some mid-cap stocks can help you diversify.
Here’s a closer look at what mid-cap stocks are, how to choose the best ones, and how to decide if they’re right for you.
Mid-cap stocks are stocks of companies with a medium-size market capitalization (the cap in mid-cap). They’re so named because they fall between small-cap and large-cap stocks.
We say that a stock is a mid-cap stock when the total value of all the company’s shares outstanding -- meaning the shares held by all shareholders, including company insiders -- falls between $2 billion and $10 billion.
|Micro-cap companies||Less than $300 million|
|Small-cap companies||$300 million to $2 billion|
|Mid-cap companies||$2 billion to $10 billion|
|Large-cap companies||$10 billion to $200 billion|
|Mega-cap companies||More than $200 billion|
Source: The Motley Fool
Mid-cap companies include fast-growing young companies that have outgrown small-cap status as well as mature companies operating in stable, profitable corners of the market.
While small-cap stocks are often fast growing but volatile, and large-cap stocks tend to be slow growing and relatively stable, the best mid-cap stocks tend to fall in between: less volatile than fast-moving small caps, but with more growth potential than mammoth large-cap companies.
Mid-cap stocks might not be top performers over short periods, but their combination of lower volatility and higher growth potential often translates into solid returns for mid-cap stock investors over long periods of time.
Don’t be surprised if you don’t immediately know the name of every mid-cap stock you read about. Some mid-cap stocks are household names, of course, but many aren’t, especially companies that operate in specialized industry niches.
Here are some excellent mid-cap stocks to consider:
You can also add the benefits of mid-cap stocks to your portfolio by investing in a fund that focuses exclusively on mid-caps.
Mid-cap stocks are often former small-cap growth stocks, and finding the best of them is a lot like searching for great small-cap stocks. Generally you want companies with visionary leaders, easy-to-see competitive advantages, good brands, and a track record of taking care of investors.
Most importantly, you want to see a history of earnings growth and sales growth over time. If a company is lacking either, you should find out why. Below is guidance for evaluating both of those metrics.
If you can hold an investment for five years or more, you’re comfortable with occasional big ups and downs in price, and you like to have a balance of higher growth and lower volatility, then mid-cap stocks might have a place in your portfolio.
Do keep in mind that although mid-caps generally offer more stability than small companies, it’s still important to do your homework before you buy.
If you’re not sure you’re prepared to do the research required to evaluate individual mid-cap stocks, or you don’t want to devote the time necessary to do so, you can still get the benefits of mid-cap stock investing by adding a mid-cap ETF or mutual fund to your diversified portfolio.
Investors want what's worked.
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