Which Mid-Cap Stocks To Buy Now? Axis Capital Report

In the last 2 elections, 12-month returns AFTER the first day rise/ fall, has been far better for midcaps vs large caps or even other candidates such as levered stocks, high RoCE (adjusted for valuation), etc. Over the last 3-5 years, Midcaps have suffered on multiple fronts: weak opportunities, low pricing power, inability to
rectify balance sheet, and hence a vicious cycle of inability to improve talent, clientele, etc. Midcaps benefit from multiple degrees of freedom as the cycle turns and all of the above brighten, feeding a virtuous feedback loop. So operating and financial leverage further drive sales & margin growth. Obviously rerating precedes earnings growth as investors anticipate some of this potent multi-delta. Which can be very treacherous! Hence we have been careful to choose our best midcap picks in two baskets:

– High growth continues, but valuations improve – many secular examples

– Growth takes off, and other synergistic drivers also thus kick in – cyclicals, etc.

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