Investors are optimistic that small- and mid-cap stocks will rally this year after a tough 2023, as attention shifts from the AI-focused Magnificent Seven. A number of top experts have noted a broadening in the stock market of late, with some capital rotating out of large-cap tech stocks and into other areas of the economy. For investors in small and mid-cap stocks, that’s certainly a good thing.

Of course, there’s debate around whether this trend will continue or not. I think that debate is healthy. But it’s abundantly clear to most investors that while the companies at the top of the food chain will likely continue to see market-beating growth, it’s also true that the valuation gap has widened to a degree that warrants some exploration.

For investors looking to broaden out their portfolios from strictly large cap names into some smaller or mid-cap companies, here are three stocks I think are worth keeping on the radar right now. These three companies are currently on my watch list, and I’d invite investors to consider adding them to theirs as well.

Key Points About This Article:

• A rotation out of large-cap tech stocks and into smaller or mid-cap growth stocks appears to be continuing.
• For investors looking to gain exposure to some of the fastest-growing mid-cap companies in the market, here are three great options to consider.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

GitLab (GTLB)

GitLab (NASDAQ:GTLB) is an open-source provider of a cloud-neutral DevSecOps platform. The company has benefited from immense flexibility and a broad customer base, supporting developers everywhere in their search for accessible code and answers to key questions. Integrating AI into the company’s business model, currently using Anthropic’s Claude 3.5, this is a company that provides a truly world-class extensive data set which can certainly leverage the ability of AI to enhance code development tools down the road.

For investors looking for a mid-cap stock with a competitive edge, I’d argue GitLab is certainly a stock to consider. The company has seen significant growth while at the same time demonstrating iron-clad cost discipline. This has led to a profitability boost, and a valuation that reflects high expectations of future growth. At 12.9-times sales, this stock is anything but cheap, and the company must sustain strong growth and operating leverage to live up to this multiple over time.

I think the company is well-positioned to meet these challenges, due to its strong fundamentals reflected in GitLab’s Q2 results. In this report, GitLab highlighted revenue growth of 31%, with adjusted EPS rising to $0.15 from $0.01. The company exceeded forecasts, raising its annual revenue and profit guidance. And to top it off, the company’s adjusted operating margins improved from -3% to 10%. GitLab also topped the Gartner Magic Quadrant for DevOps platforms, outshining both software competitors and major cloud firms.

For those looking for a long-term holding among mid-cap stocks, GTLB stock is one to consider here.

Sarepta Therapeutics (SRPT)

Sarepta Therapeutics (NASDAQ:SRPT) remains a top biotech stock I think investors may want to keep an eye on. It’s not only me who thinks this way. Analysts from BMO Capital Markets recently reaffirmed their Outperform rating on SRPT stock, providing a $200 price target. Analysts anticipate that Sarepta’s shift to suspension manufacturing for Elevidys will be completed by early 2027 without significant delays or regulatory issues. The firm views this transition positively and believes Sarepta’s stock is currently undervalued based on historical prices and future sales projections.

The company’s risk/reward profile appears to be reasonable, given its outsized prospects in its drug pipeline. The company has an upcoming FDA review of Elevidys for Duchenne muscular dystrophy. If all goes well, this is a stock that could certainly surge on any sort of positive news.

Finding a biotech stock with a key catalyst is one thing. But of course, these approval processes are binary events. There’s significant risk with this name, and while accelerated approval could certainly take place, it’s unclear as to whether the market is pricing in too much enthusiasm. That’s because a subsequent phase 3 trial for the company’s key drug failed to meet its primary endpoint, leading a nonbinding advisory committee to oppose the approval. Despite this, a binding committee later approved Elevidys, overruling earlier objections from internal teams.

I think this stock is an intriguing higher-risk bet for those with the risk tolerance to make such an investment.

BridgeBio Pharma (BBIO)

BridgeBio Pharma (NASDAQ:BBIO) is another top mid-cap biotech stock investors are watching closely right now. Like Sarepta, BridgeBio certainly has some catalysts on the horizon I think are worth paying attention to. At the time of writing, these are two of my top picks as more speculative plays in this sector.

The company is currently seeking FDA approval for a drug targeting ATTR-CM, with blockbuster potential by 2030. Despite being a secondary option to other drugs in the market, the company is also advancing infigratinib for achondroplasia, eyed as a future blockbuster. Amid buyout rumors, separate commercialization deals seem likely.

The company is gaining attention for its innovative gene-based therapies for cancer and genetic disorders. Its pipeline includes advanced candidates like Acoramidis and Infigratinib. The stock has risen 10% over the past 90 days, with analysts predicting further gains. With promising treatments and upcoming data, BridgeBio presents an appealing investment opportunity.

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