Don’t get caught up in the debate on large-cap versus small-cap stocks — the real Goldilocks opportunity lies in mid-cap stocks, according to Goldman Sachs. The firm anticipates that the S & P 400 MidCap Index will notch 13% returns over the next 12 months, aided by a combination of low starting valuations and solid economic growth in 2025. Historical trends also support the mid-cap benchmark outperforming: It has recorded an 11% compound annual growth rate since 1985, versus 9% for the S & P 500 and 8% for the small-cap Russell 2000 , according to strategist Jenny Ma. “Today, mid-cap equities offer investors superior earnings growth at a reasonable price compared with large-caps,” Ma wrote in a Tuesday note. “Mid-cap stocks have typically outperformed both large-caps and small-caps during the 12 months following the first Fed rate cut in an easing cycle,” she added. .IDX YTD mountain S & P 400 in 2024 Although potential weaknesses in economic growth are the primary risk for mid-cap stocks, much of the headwinds will be buffered by the sector’s cheaper valuations relative to large-cap stocks. In addition, mid-caps have “stronger fundamentals” compared with small-cap names, Ma noted. “Investors can buy growth and quality at a discounted price with mid-caps,” she said. “If our economists’ forecasts of near-target inflation and continued economic expansion are realized, low valuations suggest that mid-caps are an attractive source of returns for investors in the long term.” Here are some of Ma’s favorite mid-cap names that are both high quality with potential to grow. The stocks are also trading cheap relative to their historical levels. Neurocrine Biosciences and BioMarin Pharmaceutical are some of the health-care stocks that made the cut. Consumer names e.l.f. Beauty and Celsius Holdings are also on the list. Wingstop , also highlighted in Goldman’s list, has outperformed the broader market this year, surging more than 50% year to date.
