Publish date:

Midcap Stocks Find Themselves in Sweet Spot

An office-supply firm, mammogram maker and renter of uniforms draw a fund manager's praise.

BOSTON (TheStreet) -- As the economy rebounds from a soft patch, midcap stocks including Avery Dennison (AVY) - Get Report, Cintas (CTAS) - Get Report and Hologic (HOLX) - Get Report may outperform their large- and small-cap rivals, says Peter Zuger, who helps manage the Touchstone Mid Cap Value Fund (TCVAX) - Get Report.

The mutual fund has returned 4.4% over the past month, according to

Morningstar

(MORN) - Get Report

TST Recommends

. It is up 3.4% this year, beating 82% of its rivals. But its performance over time is unclear -- the fund was started in September.

Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.

Are stocks cheap or expensive right now?

Zuger:

Stocks are a pretty good value right now. The market is trading at 14 to 15 times earnings, and we think you want to own stocks at these levels -- particularly in an environment when interest rates are so low, so you can get a 2% yield on a stock portfolio, which is pretty good.

Why are midcaps preferable to large- or small-caps at this moment?

Zuger:

The historic experience has been that midcaps have outperformed over the past 25 years. We think that the valuations are still attractive at midcaps. They are cheaper than smaller stocks and have better growth prospects than large ones, so we think they are a pretty good place to be.

Why is Avery Dennison a good pick in a slowing economic environment?

Zuger:

They make labels and office supplies. One of their newest products is a high-tech device, an RFID, or a radio frequency identification device, that

Wal-Mart

(WMT) - Get Report

is embracing for their system for selling clothes. So you have a value opportunity that's really a growth stock going forward with a pretty good yield. It's a very attractive company right now.

Why do you like Hologic?

Zuger:

This is a company that makes mammogram devices. It's a good value and they have a product upgrade coming that's going to spark revenue growth. We think it's a good value in the health-care space.

What is special about Cintas?

Zuger:

This is a uniform-rental company. In the recession, their revenues were down, but they have stabilized now. As job growth increases and the recession passes, they will grow again. Basically, you have another stock with a good dividend yield, a great valuation and the possibility of a decent earnings recovery going forward.

-- Reported by Gregg Greenberg in New York.

Readers Also Like:

>>Midcap Stocks Set for Second-Half Surge

Follow TheStreet.com on

Twitter

and become a fan on

Facebook.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.