Mid-Cap Value Stock

What Is a Mid-Cap Value Stock?

In finance, the term “mid-cap value stocks” refer to moderately-sized companies (by market capitalization) that are also perceived as an investment candidate by value investors based on fundamental analysis.

How Mid-Cap Value Stocks Work

Given the vast number of securities to choose from, investors use a variety of heuristics to categorize and make sense of the opportunities available to them. To this end, two of the most common categories used by investors when assessing companies are their size and the investment style that they seem most well-suited for.

In regard to size, companies are typically categorized as being large-cap, mid-cap, or small-cap; with some investors using additional terms such as “mega-cap” and “micro-cap” to refer to especially large and small companies, respectively. In this context, the term “cap” is shorthand for “market capitalization”. When considering the investment style most relevant for a particular company, investors generally distinguish between the philosophies of value investing and growth investing. 

In simple terms, value investors are concerned with purchasing shares for less than their intrinsic value — that is, for less than they are currently worth.  Of course, individual investors will differ on their assessments of intrinsic value, as well as in their methods for arriving at this conclusion. Common examples of 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 or lack thereof.

Growth investors, meanwhile, are generally more concerned with the future prospects of a company as well as its current momentum in market trading. Companies with real or perceived growth prospects might benefit from favorable tailwinds, as investor enthusiasm encourages a growing pool of investors to bid up the share price. In some cases, special circumstances such as an upcoming product launch or an unexpected earnings beat could help garner enthusiasm among growth investors.

With this in mind, we can see that a mid-cap value stock is simply a stock that is appealing to value investors and which happens to be of middling size based on its market capitalization. As a general rule, larger companies will tend to have greater analyst and media coverage, and may thus be less likely to see substantial deviations between their market price and intrinsic value. For this reason, many value investors believe that the greatest investment opportunities are generally found among small and micro-cap value stocks.

Real-World Example of a Mid-Cap Value Stock

Investors who wish to gain exposure to mid-cap value stocks have several potential 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. On the other hand, more passive investors can also rely on third-party indexes, mutual funds, and exchange-traded funds (ETFs) which will allow 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 offered by Vanguard. Trading under the ticker symbol VMVAX, its ten largest holdings as of Q1 2021 included:

1. Carrier Global Corp.
2. International Flavors & Fragrances Inc.
3. Corteva Inc.
4. Corning Inc.
5. Motorola Solutions Inc.
6. Delta Air Lines Inc.
7. DR Horton Inc.
8. Welltower Inc.
9. Eversource Energy
10. WEC Energy Group Inc.