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These Mid-Cap Stocks Are Proven and Promising

Selena Maranjian
October 17, 2013

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some mid-cap stocks to your portfolio but don't have the time or expertise to hand-pick a few, the iShares Core S&P Mid-Cap ETF (NYSEMKT: IJH), which tracks the S&P MidCap 400 index, could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on mid-cap stocks, sports a very low expense ratio -- an annual fee -- of 0.15%. It recently yielded about 1.5%.

This ETF has performed well, topping the large-cap S&P 500 index over the past five-year and 10-year periods. However, as with most investments, we can't expect outstanding performance in every quarter or year; investors need to wait for their holdings to deliver.

Why mid-cap stocks?
Mid-cap stocks can be wonderful additions to portfolios because they've proven themselves to some degree, having grown to mid-cap size, yet they still have a lot of room to grow before they become mature large caps.

More than a handful of mid-cap stocks performed well over the past year. Green Mountain Coffee Roasters (NASDAQ: GMCR), for example, nearly tripled in value and is still actually about 25% below its 52-week high. Its success owes partly to its Keurig machines and partly to savvy partnerships. Green Mountain Coffee Roasters is also poised to profit from its falling coffee costs, as that can quietly boost profit margins. Still, private labels are giving name brands a run for their money, and now Whole Foods Market is getting into the act, too. An intriguing development is a deal with Campbell Soup to develop K-Cup soups.

Cree (NASDAQ: CREE) surged 153%, with the LED lighting specialist turning in double-digit revenue growth for several years running. The LED market is expected to grow by about 34% annually over the next few years, and to total close to $100 billion, presenting Cree with a lot of potential profits. Its bulbs have received an Energy Star rating that will permit them to qualify for rebates from utility companies. LED bulbs will be offered in Wal-Mart stores, though, which might constrict profit margins.

Oil refiner HollyFrontier (NYSE: HFC) gained 19% and yields 2.8%. It also has some special dividends this year. Along with peers, HollyFrontier has been hurt by a contraction in the difference between prices of West Texas Intermediate (WTI) crude oil and that of Brent crude, and has seen falling earnings and shrinking profit margins. This has led Wall Street analysts to downgrade a bunch of refinery stocks, though some have upgraded them. Also, like some of its peers, HollyFrontier is using rail to transport oil. Some have seen the stock as undervalued, and like its solid balance sheet, featuring falling debt.

Other mid-cap stocks didn't do quite so well over the last year but could see their fortunes change in years to come. Realty Income (NYSE: O) gained 6