Mid-Caps Might Be Having a Moment, Thanks to Valuations, Margins, and Impending Rate Cuts
When it comes to picking stocks or stock indexes, traders often seem to go big or go small — but many overlook the sweet spot in the middle: mid-caps. According to the Financial Times, companies in the middle of the market are becoming more attractive buying opportunities than their smaller and larger counterparts, thanks to favorable valuations, strong margins, and solid industry conditions.
- Over the past 12 months, 91% of the stocks in the S&P 400 Mid-Cap Index reported positive net income — outperforming the 77% in the S&P 600 SmallCap Index.
- While S&P 400 companies’ margins aren’t as high as those of large- and mega-cap firms in the S&P 500 or Nasdaq-100, they’ve held up well, even against inflation.
Right-sized opportunity: The S&P 400 may not have the same quality as the S&P 500, but it makes up for that with one key advantage — valuations. With a price-to-earnings ratio of 18x, it’s cheaper than small-caps and significantly less expensive than large- and mega-cap companies. Dec Mullarkey of SLC Capital Management calls mid-caps a “hedge against the S&P 500” because of their heavy weighting in industrials and financials. Their focus on value makes them an appealing long-term play — especially as rates begin to drop.
