Mid Cap stocks are those with a market capitalisation between $2 billion and $10 billion. These are mostly growth stocks across all sectors. S&P’s ASX mid cap index contains stocks from a range of industries. These mid cap stocks have a mean market cap of $6.4 billion and a median market cap of $5.5 billion.
One of the advantages of mid cap stocks is that they are usually in the growth phase and hence are usually bid to provide a higher return than large cap stocks. They fit well into long term strategies and have a higher probability of beating the benchmark index.
The disadvantage is that they usually possess a higher degree of operating risk than large cap stocks. Dividends are also a rarity when it comes to mid cap stocks when compared to large caps – this again, is due to the firm being in their growth phase and thus reinvesting most of their earnings.
ASX is home to quite a few mid cap stocks that are underpinned by excellent fundamentals. Most of these mid cap stocks have also performed better than the large caps during the recovery from the pandemic. These themes are expected to continue across a few sectors. The top 5 asx stocks to look out for in 2021 also contain a few mid cap stocks.
An e-commerce stock that has returned 322% year-to-date. It is an online marketplace where artists can sell their work – anywhere from paintings to mugs to apparel printed with their art. It is a fairly large marketplace now and the firm has had tailwinds driven by consumers starting to buy into online shopping during the pandemic. With spending high during the holiday season, we are expecting Aussies to look for slightly less expensive gifting options than otherwise, given the money crunch situation with high unemployment rates. An outperformance in sales during the quarter may thus be in order, making RBL a top notch mid cap stock to buy.
Kogan in an online retailer or e-commerce platform in Australia. While the lockdowns persisted, the switch to e-commerce has fast-tracked in Australia. Kogan offers various brands on its website across a wide array of categories such as electronics, toys, homewares, etc. They also own and operate 20 private label brands. The firm has also entered into markets such as pre-paid mobile phone plans, travel booking, insurance, NBN, etc. They are thus becoming into a mini-Amazon and we all know how that story has unfolded. The recent performances have been very strong and KGN is a must have mid cap stock as a part of your portfolio.
Oil Search took a heavier beating than its ASX peers during the crash in March. However, it has begun its road to recovery recently. The Sydney based company operates via the PNG unit, Alaska unit, and the Centre unit. In the latest quarter update, OSH reported sustained outperformance of PNG, which operated at an annualised rate of 8.9MTPA during the quarter and delivered the highest first nine months of production since the project commenced in 2014. In Alaska, a 33% increase in 2C contingent resources has been seen, taking total gross Alaskan North Slope 2C resources to 968 mmbbl. Going forward, Oil Search has reiterated that it will focus on the resources that matter the most and they will look to drive costs lower and simplify operations. OSH is surely an ASX mid cap stock to keep an eye on.
The ASX-100 listed company provides real estate to the digital world. The firm has and is continuing to benefit from the push towards a digital economy by offering data centre and connectivity solutions, among other services. The firm currently operates 9 data centres in Australia and is already servicing clients such as Amazon’s AWS wing. Nextdc has not just weathered the Covid19 storm but looks like it is emerging out of the crisis stronger than before. They have a lot of structural tailwinds supporting their growth story and it is one of the top mid cap stocks on the ASX.
Zip is the second largest BNPL player in Australia, behind Afterpay. The BNPL sector is heating up since the IPO of Affirm in the USA. This has brought in a lot more investor interest into the sector. Zip posted record Q2 FY2021 revenues last week. Transaction volumes increased by 103% and revenues by 88%. This has resulted in the stock price gaining a lot of momentum and has returned 51% in the past 1 month. The structural tailwinds in the BNPL sector offer a lot of support and Zip is positioned well to benefit as it is ahead of the rest of the players when it comes to market share. Zip is definitely an ASX mid cap to consider holding.
Mid Caps have performed well during 2020 and they are bid to continue doing so. Shares in Value can help pick the right mid cap stock from sectors that have tailwinds supporting them.