The best ASX mid cap stocks to watch

ASX mid cap stocks are companies listed in Australia that sit somewhere between small cap and large cap status. Mid caps used to be defined as having a market capitalisation between $1 billion and $5 billion, though more recently this has been upped to a valuation of between $2 billion and $10 billion.

Just like ‘blue chips,’ there is no clearly agreed definition — so there is an element of subjectivity to the classification. However, the general consensus is that mid caps have less of the risk associated with penny stocks, but with higher potential rewards than blue chips offer. Of course, the reverse is also true — a mid-cap is riskier than a large cap company and may be less rewarding than the right penny share.

As a rule, mid-caps do have somewhat established market position, and can be attractive targets for mergers and acquisitions. Indeed, many of the most promising ASX mid cap stocks never grow to large cap status as they are either bought out by bigger fish or swallowed by private equity before they reach too large a size.

They also offer investors portfolio diversification, as they can reduce overall risk because their performance is often not correlated with larger or smaller stocks.

On the other hand, mid caps are typically volatile, can be less liquid than larger businesses, and often have less analyst coverage — making informed investing decisions trickier. They are usually also more sensitive to wider market conditions, and especially rate rises; typically, mid cap companies grow faster when rates are lower.

Of course, these general rules cannot be applied to individual companies. And as always, past performance is not an indicator of future returns.

Top ASX mid cap stocks to watch

The following five companies were the five best-performing ASX 2002 shares by capital gains in 2023.

1. Neuren Pharmaceuticals
2. Emerald Resources
3. James Hardie Industries
4. Boss Energy
5. Boral Limited

Neuren Pharmaceuticals

Neuren Pharmaceuticals shares saw a spectacular gain of more than 200% in 2023. The biotech company benefitted hugely from the regulatory approval and subsequent sales of its Daybue treatment for Rett syndrome — a rare genetic neurological and developmental disorder that affects the way the brain develops. This disorder causes a progressive loss of motor skills and language from the age of about six months old.

Then late in 2023, the stock jumped sharply after it released positive Phase 2 clinical trial results of its NNZ-2591 candidate, designed for children with Phelan-McDermid syndrome. For context, the syndrome is currently untreatable.

Emerald Resources

Emerald Resources is a bit of a misnomer — the company has royalty interests in the gas production from several oil and gas interests located in Magoffin County, Kentucky, US. It also has 100% ownership of the Okvau Gold Project located in the Mondulkiri province of eastern Cambodia.

The company enjoyed an excellent operational performance in 2023 and has also been buoyed by the near-record price of gold as the precious metal continues to attract central bank buying alonfside elevated retail interest. Indeed, Okvau’s production for the December 2023 quarter stood at 29,184 ounces, with gold poured of 30,425 ounces.

James Hardie Industries

James Hardie Industries may not be considered as a traditional mid-cap stock given its market capitalisation — but the company started 2023 at a 52 week low and rose by over 100% in the year.

In November 2023, The Australian reported that the building materials company might be subject to a private equity bid — and despite the slowdown in housing construction, after imposing 12% price rises in both Australia and New Zealand, the company saw increases in earnings alongside higher margins last year.

For context, Q2 2024 results saw the ASX mid-cap report record adjusted net income of US$178.9 million, alongside record first half operating cash flow of US$459.1 million.

Boss Resources

Boss Resources Limited nearly doubled in value in 2023 as the mid-cap ASX uranium share was lifted by the rising appetite for the silvery-white radioactive metal. Now at US$106/lb, uranium demand is continuing to surge as countries scramble for secure supplies to power nuclear reactors in power stations.

Boss acquired the Honeymoon uranium project in South Australia in 2015, after the mine was put into care and maintenance in response to falling uranium prices. It’s since conducted an enhanced feasibility study and is bringing the fully permitted mine back into production.

Boral Limited

Boral Limited came close to doubling in value last year, most recently due to its recent trading update, where it recorded a stronger-than-expected performance between July and October 2023. Management for the building materials company upgraded guidance for EBIT from between $270 million and $300 million for the fiscal year to a range of $300 million to $330 million.

For context, this would represent an 36% EBIT increase on fiscal 2023 — itself more than double EBIT fiscal 2022. CEO Vik Bansal enthuses that ‘Price realisation remains extremely important in the current inflationary environment. Volumes year to date have been relatively steady and at this stage, we expect this to continue through the remainder of FY24.’

How to invest or trade in ASX mid cap stocks

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