Money Managers Cite Values In Mid-Size Companies
- Alan Lavine and Gail Liberman
So which mid-size company stocks and large company stocks are fund managers buying?
Hugh Denison, co-manager of the Heartland Select Value Fund, now buys larger "mid-cap" or mid-size company mid-cap stocks that pay dividends. The average holding of the fund sports a capitalization rate of $3 billion. That means he owns companies that will one day be blue-chip stocks.
"We like the larger names," he says. "We are focusing on dividend payers. Dividend-paying stocks are outperforming non-dividend paying stocks and represent better values."
Denison expects the market to rotate to larger companies. Smaller company stocks have outperformed large company stocks over the past few years by a large margin.
"We have a list of stocks we would like to buy," he says. "Larger companies that that were considered growth stocks are now value stocks. We are not lacking in ideas to look at."
Denison holds just 40 stocks. He recently purchased larger mid-cap names like Wisconsin Energy. The reason: The market has frowned on utility stocks.
Nevertheless, the stock represents good value and yields 3 percent.
NRG Energy generates electric power and sells it in the Northeast. The company is coming out of bankruptcy, but its financials look good, and it does not face stiff competition.
Carl Marker, manager of the IMS Capital Value fund, sticks with mid-cap issues. Today, he has just 9 percent of assets in larger company stocks.
Currently, his fund is concentrated in the technology, health care, consumer staples and financial services sectors. For example, he likes E*Trade. The online brokerage firm's earnings were up 80 percent last year.
He also likes Service Corp. The stock, of the company, which owns cemeteries nationwide, dropped from a high of $50 to $6. But sales and earnings are growing at 12 percent annually.
"Mid-cap stocks are the place to be," he said. "They have outperformed large and small cap stocks based on risk and return over the past 20 years. They have historically been a neglected asset class. Mid-cap stocks tend to get purchased by deep pocketed large-cap buyers. There are greater opportunities to uncover under-recognized assets."
Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).
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