Dian's Column
Dian's Archive


Values abound in mid-cap stocks

- Alan Lavine and Gail Liberman

Over the next few months, Alan Lavine & Gail Liberman's column will consist Despite heavy attention to large-company stocks, money managers were citing good values in both growth and undervalued mid-size-company or "mid-cap" stocks.

The performance of mid-cap stock funds, which invest in companies with market capitalizations of $1 billion to $10 billion, was slowing in 2006. They slightly underperformed all domestic asset classes--except large-cap and small-cap growth funds.

This, despite the fact that mid-cap growth funds were the top-performing domestic stock asset class in 2005, according to Morningstar Inc., Chicago. Mid-cap value and blend funds also were 2005 top-performers.

But mid-cap growth stocks have retrenched due to concerns about rising inflation and slowing economic growth. Although there was a broad sell-off in mid-cap stocks during the first half of 2006, the downturn improved the performance of mid-cap value funds.

"A sharp sell-off in speculative stocks, including overseas names in the emerging markets, sparked a broad correction in the United States," said Kerry O'Boyle, Morningstar analyst in a recent report. "While the more aggressive strategies suffered, value oriented styles again offer more stability."

Current trends favor large company or "large-cap" stocks for a couple of reasons: Small company and mid-cap stocks performed well during the beginning of the economic cycle, but investors were rotating into large-cap stocks--a common trend later in the cycle. Large companies, with more cash reserves and diversified businesses, should perform well if the economy slows or revives.

So how should you invest now?

It's best to own both large-size, mid-size and small company mutual funds that invest in undervalued stocks. Over the longer term, undervalued stocks have outperformed growth stocks. But it never hurts to own some growth stocks. The reason: Every four to six years, growth and value stocks take turns outperforming each other.


Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.

To read more columns, please visit the column archive.

[ top ]