Mid-Cap Value Stock What It is How it Works Example
Contents
Mid-Cap Value Stock: What It is, How it Works, Example
What Is a Mid-Cap Value Stock?
A mid-cap value stock is a good choice for value investors at its current price per share. Mid-cap indicates a moderate-sized company in terms of total market capitalization.
Key Takeaways
- Mid-cap value stocks are potential choices for value investors who look for stocks trading below their intrinsic value.
- Companies are categorized as small-cap, mid-cap, or high-cap based on total market capitalization.
- The value stock is one of several categories that define risk levels and reward potential.
How Mid-Cap Value Stocks Work
Given the vast number of stocks, investors use various methods to categorize and make sense of the opportunities available to them.
One common category used by investors is company size. Another is the investment strategy that best suits the investors’ needs.
Market Capitalization
Companies are typically categorized by total market capitalization, which is simply the current share price multiplied by the number of outstanding shares.
They can be categorized as large-cap, mid-cap, or small-cap stocks. Some investors use additional terms such as mega-cap and micro-cap to refer to especially large and small companies.
Investment Style
The issue of investment style is relevant to the investor’s strategy. Investors generally distinguish between value investing and growth investing.
Value investors aim to buy shares of stocks selling below their intrinsic value. Valuation methods used by value investors include financial ratios such as the price-to-earnings (P/E) and price-to-book-value (P/B) ratios, discounted cash-flow analysis (DCF), and qualitative assessments of a company’s competitive advantages.
Growth investors, meanwhile, are concerned with the future prospects of a company as well as its current momentum in market trading. Companies with growth prospects might benefit from favorable tailwinds, as investor enthusiasm encourages more investors to bid up the share price.
Combining Mid-Cap and Value
A mid-cap value stock is appealing to value investors and is of middling size based on market capitalization.
Larger companies tend to have greater coverage by analysts and the media. That attention means they may be less likely to have a big difference between market price and intrinsic value.
For this reason, many value investors believe that the best investment opportunities are generally found among small and mid-cap value stocks.
Example of a Mid-Cap Value Stock
Investors who want to gain exposure to mid-cap value stocks have several methods at their disposal. Those who are willing and able to conduct their own research can search for companies manually using tools such as stock screeners. Passive investors can also rely on third-party indexes, mutual funds, and exchange-traded funds (ETFs) which allow them to invest in a diversified portfolio of mid-cap value stocks using a single investment vehicle.
One popular example of a mid-cap value stock investment is the Mid-Cap Value Index Fund Admiral Shares offered by Vanguard. Trading under the ticker symbol VMVAX, its ten largest holdings as of Q1 2021 included:
- Occidental Petroleum Corp.
- Valero Energy Corp.
- Nucor Corp.
- Corteva Inc.
- Welltower Inc.
- Dollar Tree Inc.
- Motorola Solutions Inc.
- Kroger Co.
- Arthur J. Gallagher & Co.
- Consolidated Edison Inc.
