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Individual medium sized companies look good

- Alan Lavine and Gail Liberman

Money managers characterized the mid-cap sector as a "stock picker's market"--

"Our multiples of mid-cap companies are unusually low right now," said Robert Lanphier, co-manager of the William Blair Mid-Cap Growth Fund. "Half of our portfolio is trading in the bottom quartile of historic five-year ranges. Multiples have compressed because earnings are strong and stock prices haven't kept up."

Lanphier said that high quality growth companies with strong balance sheets and market share should perform well. Even if the market rotates into large companies, mid-cap growth stocks should get pulled along for the ride.

Next year's earnings on his average holding were expected to be more than 20%. Meanwhile the average stock earnings of the Russell Mid-Cap 2000 Index were projected to grow at 16%. The debt-to-total capital of his holdings was half of the benchmark index. And the return on equity of his holdings averaged 22.5% compared to 20.8% on the benchmark.

Lanphier said that going into 2007, he had cut back slightly in consumer and industrial stocks. But he was sticking close to the sector weights of the Russell Mid-Cap Index. Companies he favored included Car Max, which exhibited strong same store sales growth and accelerating earnings. The company was trading at 18 times earnings while earnings were growing at 25% annually; Fastenal, which makes nuts and bolts; Paychex; and Iron Mountain data storage companies. Projected earnings and return on equity of the last two companies were higher than the benchmark.


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.

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