Middle Capitalization Stocks

Investors do have a near infinite supply of financial products at their disposal, with the ultimate goal being to match asset classes alongside personal risk versus rewards profiles. Individual stocks are often classified according to the size, or market capitalization, of the overall corporation. Investors interested in middle capitalization stocks are typically in search of alpha relative to the broader market. Aggressive investors, of course, must accept more volatility in exchange for the prospects of higher returns.

The Corporation

The corporation is a legal entity organized under state law to be distinct from the ownership and management of the operation. This legally binding separation is referred to as “limited liability.” The personal assets of employees and investors held outside of the business are shielded from potential losses and litigation that are associated directly with the corporation. This limited liability status allows the corporation to raise capital by selling shares to investors.

Corporate Financing

Corporations finance themselves by taking on debt that must be repaid to creditors, or by selling authorized shares to investors in exchange for ownership stakes. States authorize a set number of shares that may be issued by the corporation. Shares outstanding reference the total amount of shares held by the public.

One share of stock represents voting power and claims to the assets and profits of the corporation. Share prices are generally a function of management decisions and economic prospects for the underlying business. Middle capitalization stocks are typically still within the growth stage of the business cycle.

Market Capitalization

Investors meet at organized exchanges to trade stocks by auction method. Market capitalization, or cap, is the result of multiplying the corporation’s shares of outstanding common stock by its current share price. The balance sheet will list out the number of shares of outstanding common stock for the corporation.

Market capitalization is a valuation metric. A buyout firm may begin at market capitalization as a starting point before making an offer to take a public corporation private. Apple is now the world’s largest corporation, according to market cap, at $535 billion.

Parameters for Mid Cap Stocks

Middle capitalization stocks carry valuations roughly between one and $10 billion. Notable mid cap stocks would now include Tiffany, Best Buy, Whole Foods, and Penske Automotive. S&P and Russell both operate mid cap indices that track this subset of the market.

Characteristics

Middle capitalization stocks are smaller stocks that generally carry greater opportunities for growth by expanding market share. This potential, however, must be tempered by staring down formidable financial risks due to tough competition from larger players and limited access to financing.

Mid cap stocks are somewhat notable for wild swings of 50% or more, from peak to trough throughout the year. A diversified portfolio featuring large cap stocks will help conservative investors manage risks.