Nobody loves the thrill of stock-picking more than I do. However, sometimes I just don't have the time or desire to do the kind of research I like to do. That's when I hire a fund manager to do the work for me ... for free. Here's how you can do it too.
IN PICTURES: World's Greatest Investors
Means to an End
Though my goal is to teach a technique, this isn't just an academic exercise - I really am trying to pinpoint a group of stocks I suspect are still undervalued and ripe for more gains: the mid caps.
In a September 2 analysis I mentioned that small caps looked as if they were poised to lead this bull market like they led the last one. The same data also showed, however, that mid-cap value stocks were running a very close second, as they also did during the previous bull market.
I don't think it's a coincidence that mid-cap funds are also the leading group so far this year. That's a bit of a surprise considering the small-cap indexes, which aren't actively managed, are actually the market's winners since the March bottom.
That's the polite way of saying that mid-cap fund managers are either: very good, swimming in the right pool, or both. Regardless of the reason, as a long-term mid-cap bull, I want to ride those coat-tails in my efforts to outperform the market.
The Professional's Picks
Unfortunately for fund managers - but fortunately for us - any fund's top holdings are required to be disclosed on a quarterly basis. Find the top mid-cap funds, and odds are you'll find several of the mid-cap group's top stocks.
To give credit where credit is due, I found five very attractive mid caps by dissecting just three funds: the Appleseed Mid Cap Value Fund, the Monteagle Informed Investor Mid Cap Growth Fund and the RidgeWorth Mid Cap Value Equity Fund.
Those funds were among the consistently strong performers for the year so far. No, it's not a great deal of time, but we're just looking for stock ideas at this point - not long-term fund positions.
Though not a particularly scientific assembly, the mid-cap stocks below were either commonly held by more than one fund, strong performers for that fund or undervalued - and some were a combination of all three. Most importantly though, all five look as if they have more upside ahead of them - history is irrelevant for new positions.
|Mid-Cap Stock||Trailing 12 Mo. P/E||Forward P/E - Next Fiscal Year|
|Noble Corp. (NYSE:NE)||6.1||7.2|
|Mattel Inc. (NYSE:MAT)||17.4||12.7|
|Harris Corp. (NYSE:HRS)||127.5||9.9|
|Myriad Genetics Inc. (Nasdaq:MYGN)||35.4||18.3|
|Netflix, Inc. (Nasdaq:NFLX)||27.6||20.7|
Don't assume that a fund still owns the stocks you came across, as the top-holding snapshots are history; you could be buying what they're selling. Moreover, you can't assume the fund manager owned a certain stock during the high-performance period. The fund examination is simply to uncover ideas you may have never considered, with the indirect benefit of knowing an institution was interested in it at one point. In other words, you still need to do your own due diligence.
The Bottom Line
Nevertheless, a leading fund is a leading fund for a reason, and we just named five mid-cap stocks that the fund industry's top performers were, or are, interested in. That's not a bad place to start. And if you decide that's still a little too much work, you can always choose to simply buy the fund. (For more, check out Determining What Market Cap Suits Your Style.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Mutual Funds & ETFsLearn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
Investing NewsWill Ferrari's shares move fast off the line only to sputter later?
Stock AnalysisHere are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
InvestingThe further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
Fundamental AnalysisOptions market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
Stock AnalysisCan these two oil stocks buck the trend?
Investing NewsAlcoa plans to split into two companies. Is this a bullish catalyst for investors?
Stock AnalysisIf you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
Investing NewsA rate hike would certainly alter the investment scene, but would it be for the better or worse?
Investing NewsWith market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>