Mid-cap stocks getting some love, finally

new york » Maybe the middle child really should be the favorite.

Just like families sometimes overlook the middle kid, investors all too often pay attention to just the smallest and largest stocks.

Managers of mid-cap stock mutual funds say they’ve experienced the middle-child syndrome for years: Small-caps are young companies that offer the thrill of big growth, the thinking goes, while large-cap companies have well-established brands and can be more dependable.

But it’s the middle ones that have delivered the best results over the last generation, at leastwhen it comes to stocks. Managers say that’s because the stocks of mid-cap companies can offer the best attributes of both larger and smaller ones.

“It really does represent the sweet spot,” says Mariana Connelly, a client portfolio manager at J.P. Morgan Asset Management. “Unlike small caps, these companies are a little more seasoned and not quite as volatile. Unlike large caps, they have a lot of room to grow.”

Different indexes vary onwhat defines a midcap company, but they generally have market values closer to $4 billion than the $467 billion value of Apple.

The biggest stocks in the S&P 400 MidCap index include $8.8 billionAdvanceAuto Parts and $9.5 billion Church& Dwight. The Russell Midcap index includes larger companies, such as $28.5 billion Delta Air Lines. The average company in the large-cap Standard & Poor’s 500 index is worth $35.4 billion.

Over the last 20 years, mid-cap stocks in the S&P 400 have returned 12.4 percent annually, including dividends. That beats the 11.2 percent return of the S&P 600 SmallCap index and the 9.5 percent return of the large-cap S&P 500 index.

The rising popularity of mid-cap stocks has helped make them more expensive than they used to be. But fund managers say more gains are still possible. Among the attributes they cite are: • Stronger earnings growth than large caps. Big companies are in the midst of a relatively poor earnings season: Analysts say profit for S&P 500 companies fell 1.4 percent in the first quarter from a year ago, according to FactSet.

The picture is brighter for mid-cap stocks. Analysts are forecasting growth of 1.7 percent. • More of a domestic focus than large caps. The U.S. economy’s growth isn’t as strong as many would like, but it’s still better than that of many other countries. • Not as expensive as small-cap stocks. Mid-cap stocks look expensive relative to their earnings, but small-cap stocks look more so. The S&P 400 trades at 19.7 times its earnings per share over the last 12 months, which is below the small-cap index’s ratio of 20.6.