For Long-Term Wins, Look to Nimble Midcaps

To try a midcap fund, consider American Century Mid Cap Value, which has returned 3.8% anually during the past five years, outdoing 95% of its peers and outpacing the S&P 500 by 4 percentage points. The American Century portfolio managers seek solid stocks that have become slightly depressed because of transitory problems. "Our companies have very good balance sheets, and they are leaders in their industries," says portfolio manager Toney.

A favorite holding is Republic Services(RSG), a trash hauler. An acquisition saddled the company with debt, Toney says, but Republic has strengthened its balance sheet. Now the company is generating strong cash flows from a business that tends to be stable.

Toney also likes Imperial Oil(IMO), which produces oil and natural gas in Canada. The company has a rock-solid balance sheet. Toney says that if the business ever ran into trouble, it could probably get help from Exxon Mobil(XOM), which owns most of Imperial's shares.

Another solid fund is RidgeWorth Mid-Cap Value Equity(SAMVX), which returned 5.2% annually during the past five years, outdoing 99% of its competitors. Portfolio manager Don Wordell favors dividend-paying stocks with price-earnings ratios that are in the bottom third of their historical ranges. Wordell looks for catalysts such as acquisitions or divestitures that can push up depressed stock prices in the next 12 to 18 months.

A holding is MB Financial(MBFI), a Chicago bank that has been scooping up failed competitors. After the bank cleans up its acquisitions, earnings should climb, Wordell says. "This is a stock that can double in the next two or three years," he says.

He also likes R.R. Donnelly(RRD), a leading commercial printer. While the printing industry has suffered because of the recession and the continuing growth of the Internet, R.R. Donnelly has proved resilient, cutting costs and acquiring weaker competitors. The stock pays a rich dividend of 6%.

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