The Benefits of Adding Mid and Small Cap Stocks to Your Large Cap Portfolio

Last Updated on December 12, 2023

Advantages of Large Cap Stocks:

Stability: They tend to be more stable and less volatile than mid-cap and small-cap stocks. These companies are often established leaders in their industries, have a long history of stability and can weather economic downturns better than smaller companies.
Quality and growth potential: High-quality Large-cap stocks tend to be companies with a track record of steady earnings growth. These companies often have strong management teams, diversified revenue streams, and competitive advantages that make them well-positioned for long-term growth.
Lower risk: Because of the above two characteristics they carry less risk. Including the low risk of the stock price being manipulated since they usually have high liquidity and are studied by many analysts.

Advantages of Mid and Small Cap Stocks:

Diversification: Investors can diversify their portfolio across different industries and market cap. During periods of economic growth and lower uncertainty, investors tend to prefer mid and small cap stocks over large cap stocks. This tends to reverse in times of high uncertainty. This lower correlation can help improve portfolio diversification and potentially improve returns.
Higher Growth and Returns Potential: Smaller companies often have more room to grow than larger companies, and as a result, they may offer significantly higher growth rates and returns.
Opportunities for an alpha generation: Mid-cap and small-cap stocks are often less followed by analysts and less efficiently priced than large-cap stocks. As a result, investors who are skilled at identifying undervalued companies may be able to generate alpha by investing in mid-cap and small-cap stocks.

However, mid and small cap stocks are more volatile and carry more risk. You need to be able to identify quality stocks that are attractively priced to enjoy the above benefits. But, if your portfolio and risk profile permits you, building a portfolio with large, mid, and small cap stocks of high quality bought at reasonable prices can enable you to enjoy stability and higher returns without exposing yourself to high risk.

Moneyworks4me can help you invest in small and midcap stocks

Moneyworks4me is an online investment platform that helps investors identify high-quality small and midcap stocks for investment. Here are some ways Moneyworks4me can assist in investing in small and midcap stocks:

Stock Screening: Moneyworks4me uses a stock screening process to identify high-quality small and midcap stocks based on several parameters such as growth potential, financial strength, and valuation. Investors can use this screening process to shortlist stocks that meet their investment criteria.

Research Reports: Moneyworks4me provides research reports for each of the shortlisted stocks, which include a detailed analysis of the company’s financials, business model, management quality, and growth potential. These reports can help investors make informed investment decisions.

Portfolio Building: Moneyworks4me also offers a portfolio-building feature that helps investors build a well-diversified portfolio of small and midcap stocks that meet their investment goals and risk tolerance. The platform recommends a portfolio of stocks based on the investor’s risk profile and investment horizon.

QaRP Valuation: Moneyworks4me provides a valuation that helps investors determine the fair value of a stock based on several financial ratios and growth assumptions. This tool can help investors identify stocks that are attractively priced and have significant upside potential.

Buy/ Sell/ Hold: Moneyworks4me also provides Buy/ Sell/ Hold triggers for stocks based on QaRP.

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Useful Links:

Undervalued Nifty 50 Mutual Fund Screener Stock Screener Alpha Cases 5 Stars Rated Stocks from Nifty 500 Business Houses Group