Mid-Cap Stocks: The Hidden Gem in 2025

As we approach 2025, investors are eagerly seeking the next big opportunity in the stock market. While large-cap and small-cap stocks have their merits, mid-cap stocks could be the hidden gem that outperforms in the coming year. Let's explore the reasons behind this potential and the factors driving mid-cap stock performance.



1. Earnings Growth and Valuations

Mid-cap stocks are projected to show faster earnings growth than both small and large cap stocks in 2025. According to Goldman Sachs, mid-cap stocks within the S&P 400 are forecasted to show earnings growth of 11% in 2025, compared to 7% for large caps and 5% for small caps. This faster earnings growth, combined with a lower absolute P/E multiple of around 16x, makes mid-caps an attractive opportunity for investors seeking a balance of value and growth.



2. Trade Policies and Regulatory Changes

Mid-cap stocks could outperform in 2025 due to favorable trade policies and regulatory changes. As the U.S. economy recovers, mid-caps, with their greater domestic revenue exposure, may benefit from reduced trade uncertainties. The incoming Trump administration's targeted tariffs and deregulation could boost industrial production and M&A activity, favoring mid-caps. Additionally, mid-caps' lower valuations and stronger quality characteristics make them an attractive opportunity for investors seeking a balance of value and growth.

3. Key Sectors Driving Earnings Growth

Mid-cap stocks could outperform in 2025 due to their exposure to favorable economic trends and attractive valuations. As the economy strengthens, mid-caps, which are more correlated to U.S. GDP growth, are poised for growth. Key sectors expected to drive earnings growth and outperformance in 2025 include industrials, utilities, and insurance.

In conclusion, mid-cap stocks could be the hidden gem in 2025, offering investors a balance of value and growth. With attractive valuations, enhanced earnings growth prospects, and reduced exposure to international trade risks, mid-cap stocks present an appealing investment opportunity. As the market broadens and economic growth continues, mid-cap stocks could be well-positioned to outperform their small and large-cap counterparts.