Seeking out the 10 mid caps to rule them all is the only logical follow-up to seeking the 10 small caps to rule them all. Unlike small-cap companies that offer investors the potential for high-risk, high-reward returns, mid-cap companies usually have significantly less risk built in because of their proven business track records. These companies offer either distinctive products or exceptional value to investors -- or possibly both.

Here are the choices for the previous seven weeks:

This week I'd like to highlight a household name in retailing with both the young and old crowd -- Foot Locker (NYSE: FL).

What it does
Unless you purposely avoid malls like the plague, you're probably familiar with Foot Locker. The company has been going toe-to-toe with Finish Line (Nasdaq: FINL) for decades, providing athletic footwear and apparel to literally keep America running.

How it stacks up
Sometimes you don't have to turn over every rock to find the gem you've been looking for. Foot Locker is a household name with a ton of potential that has been cranking out outstanding results regularly over the past few years.

The resurgence of Foot Locker can be attributed primarily to two things: trimming the fat and a boom in running shoes.

Within the past three years, Foot Locker has closed approximately 650 stores, which left the company with high-margin, well-performing stores. It's no surprise then that in its most recent quarter, same-store sales spiked 12.8% over the year-ago period. Also of note is the strength in Foot Locker's running shoe business. With Americans becoming increasingly more health-conscious, sales of Converse, Puma, and Adidas are up strongly, so much so that Foot Locker breezed past consensus EPS projections by 36% last quarter.

Understanding the footwear sector requires a magnifying glass, because the companies within the sector often move in tandem. If Foot Locker is doing well, it's very likely that footwear manufacturers Nike (NYSE: NKE) and K-Swiss (Nasdaq: KSWS), as well as retailers Finish Line, Collective Brands (NYSE: PSS), and Shoe Carnival (Nasdaq: SCVL) are doing well, too. So let's take a closer look at these companies.


Forward P/E

5-Year Growth Projections

Dividend Yield

Foot Locker 13.4 8.8% 2.8%
Nike 16.4 12.0% 1.4%
Finish Line 13.1 13.0% 0.9%
Collective Brands 9.9 10.5% N/M
Shoe Carnival 12.6 15.0% N/M
K-Swiss N/M N/M N/M

It's pretty easy to eliminate some of these eyesores, like K-Swiss, which, despite being a manufacturer (not retailer) of athletic footwear, is still unprofitable, or Shoe Carnival and Collective Brands, which are profitable but pay no dividends. Despite having the lowest five-year growth projection of the remaining three, Foot Locker has been surpassing EPS estimates by greater amounts than Nike and Finish Line over the past four quarters, while offering a substantially sweeter dividend yield.

How it could make you money
As long as the trend of healthier eating and living persists, Foot Locker's running shoe business should continue to be its primary growth driver; the last time I scrolled through TV channels at 1 a.m., it was a myriad of exercise infomercials. Running shoe growth means healthy margins, and having closed underperforming locations has reined in revenue growth for the benefit of better efficiency. Translation: expect more EPS surprises to come.

Possibly Foot Locker's most overlooked factor is its dividend. The company has nearly kept pace with Nike in terms of its dividend growth rate. Over the past five years, Nike's dividend has grown 15.3% annually, while Foot Locker's payout has jumped by 13.3% per year. Foot Locker's dividend is double that of Nike, and with a payout ratio of only 45%, it could have considerable room to inch higher in the coming years.

Sometimes it's the names right under our noses that do indeed offer the best value. While most of the footwear sector appears strong, Foot Locker stands out above its competitors and deserves a spot in the 10 mid caps to rule them all.

Would you buy Foot Locker, right here, right now? Share your thoughts in the comments section below and consider slipping this recent high-stepper onto your watchlist to keep up on the latest news in the footwear sector.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that steps to the beat of its own drum.