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.
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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.)
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