What to look for in stand-out mid-cap stocks

What to look for in stand-out mid-cap stocks

While they typically receive insufficient analysis due to their size, mid-caps can often be a furtive hunting ground for value-plays and growth stocks for those willing to drill down into this part of the market.

The trick when looking at mid-caps is to try and unearth those stocks with the potential to become the next Blackmores (ASX: BLK) or the next TPG Telecom (ASX: TPM) – which have both experienced rapid and dramatic rises from relative obscurity – especially before the rest of the market wakes up to their underlying opportunities.

Ask 10 institutional investors what represents a mid-cap stock within an Australian context, and you’re likely to get 10 different answers. But when Rivkin went in search of promising mid-caps, we looked exclusively those stocks with market caps of between $400 million and $1 billion.

Given that there are only around 170 (10%) stocks on the ASX with market caps over $1billion, there’s plenty of scope for stocks at the top-end of this $400 million to $1 billion market cap range to still make it onto the ASX 200 index; and there are a few interesting stocks who could be knocking on the door of the ‘ASX 200 club’ within short order (see table).

In addition to the extra market coverage, stocks that find themselves on the ASX200 also stand to receive extra market support with some institutional investors being mandated to hold the stock.

For purposes of this exercise, we have excluded the 1,500-plus small-cap and micro-cap stocks listed on the ASX – which incidentally represent a whopping 85% – that currently have market caps less than $400 million.

While we’re not saying that these stocks aren’t worth looking at, they will be the subject of future analysis.

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