Look Here for Mispriced Stocks By Spencer Jakab
Stocks have suffered four down days in a row on AI jitters , but futures suggest a recovery today, boosted by blowout numbers from Micron . Delayed inflation data
probably won't have its usual impact, but earnings from some economic bellwethers might: Olive Garden parent Darden releases its numbers before the bell. Logistics specialist FedEx and sportswear company Nike report in the afternoon.
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One of the more interesting opportunities in the stock market is easy to miss.
While it seems like all the attention has been on the S&P 500, and especially AI-related stocks , some have at least pointed out bargains in small-capitalization companies . Is there something we've overlooked?
Yes: everything in-between. Mid caps are like the Jan Brady of the stock market. They lack the size and name recognition of the blue chips but are no longer as trouble-prone as small companies. The category is lightly covered by Wall Street analysts and index funds focused on mid caps are tiny.
"That's what we like about it-it provides a lot of opportunities to find mispriced gems," says Andy Romanowich, a mid cap fund manager at Madison Funds.
The five largest companies in the S&P 500 have an average of 66 analysts producing earnings forecasts, according to FactSet. Their counterparts in the S&P 400 average just 15. Some farther down the list have hardly any coverage at all.
Similar to small caps, the group has languished over the past five years. But mid-cap companies tend to be financially sturdier, and they're nearly as cheap. The S&P 400 trades at a 28% discount to the S&P 500 on trailing earnings.
Over the past five years, the S&P 500 has returned 95% compared with 56% for mid caps. In the preceding quarter century, though, mid caps were superb. A dollar invested in the S&P 400 grew to be worth more than $15 compared with less than $10 in the S&P 500.
Like small caps, the category tends to shine after large company valuations get stretched enough
to worry investors, as they have lately. And while a recession or more trade turmoil is at least as dangerous for mid caps as for large companies, the category looks less risky in other ways.
For example, despite having more members, the S&P 500 is surprisingly top-heavy; 13 companies each make up at least 1% of the index. Only one company in the S&P 400 does. The mid-cap index also is less exposed to tech with about half of the S&P 500's industry weighting.
The flood of passive money into stock index funds has partially bypassed mid caps, but there's a silver lining: When a company gets promoted to the S&P 500, it rallies on that news alone because traders anticipate forced buying by the 401(k) crowd. It's still in the S&P 400 when the gains occur, though.
On the other hand, when a company is demoted from the S&P 500 it typically slumps, but it's still in that index for several days. Then it enters the mid-cap index at a marked-down price.
In a market with too much dumb money, it's smart to ask what has been ignored.
CONTENT FROM: GLOBAL X ETF'S Global X 2026 Outlook
The world left the 1920s forever changed. The same might well be true of the 2020s. The Global X 2026 Outlook, presented in two parts, macroeconomic and international, unpacks today's rapidly evolving environment and explores what could be in store for the next chapter of the "Roaring 20s." Dive into high-conviction investment themes for a year that brings promise, but also uncertainty.
Read More
Stocks I'm Watching
Micron Technology : The memory-chip maker said it expects growth to acelerate
in the coming months. It raised its outlook for two key products and shared revenue guidance well above expectations. Shares jumped nearly 10% in premarket trading.
Lululemon Athletica : Elliott Investment Management has built a stake
of over $1 billion in the struggling athletic apparel retailer and wants former Ralph Lauren executive Jane Nielsen to be its CEO, The Wall Street Journal reported. Shares rallied 4.5% premarket.
Accenture ; FactSet Research Systems ; Darden Restaurants : The consulting firm, the financial-data company and the Olive Garden parent are scheduled to report earnings Thursday morning.
Woodside Energy : CEO Meg O'Neill is stepping down to take the helm of BP . Shares in BP were little changed; Woodside shares fell 2.7% in Sydney.
FedEx ; Nike : The delivery company and the sportswear brand are due to report their results after the market close.
One Big Chart
Bad News for Buyers of New Phones and PCs
Micron's results show that the AI gold rush is creating shortages of memory chips. That could raise prices
for all gadgets.
What I'm Reading Everything speculative, everywhere, all at once? Coinbase has partnered with Kalshi to offer trading on sports, elections and economic indicators, expanding beyond crypto. ( WSJ ) President Trump's crackdown on Chinese imports in the U.S. has redirected a tsunami of cheap stuff into Europe. ( WSJ ) Wall Street is getting a glimpse of what could be the biggest year ever for IPOs in the U.S. ( WSJ ) Weyerhauser, the forestry heavyweight, plans to turn runty trees and sawdust from its mills into a replacement for metallurgical coal used in steel making. ( WSJ ) An electricity auction has highlighted soaring prices and reliability worries. ( Barron's ) Today in Markets History
On this day in 1899, rocked by news of heavy U.S. casualties in the battle against rebels in the Philippines, the Dow Jones Industrial Average plunged 8.7%, or 5.57 points.
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About Me
Business and finance have fascinated me for a long time. Before writing this newsletter, I edited The Wall Street Journal's Heard on the Street team for a decade, wrote two investment books and managed a team of stock analysts at a global investment bank.
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(END) Dow Jones Newswires
December 18, 2025 06:47 ET (11:47 GMT)
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