The Cream of the Mid-Cap Crop

Mid-cap stocks are sitting pretty compared with their larger counterparts. S&P's latest screen identifies 22 attractive names in the group

by Beth Piskora From Standard & Poor's Equity Research

Where will the earnings growth be in 2008? According to statistics compiled by Standard & Poor's Chief Investment Strategist Sam Stovall, mid-caps are in the sweet spot for growth and valuation.

Based on earnings estimates by S&P equity analysts, mid-cap stocks (those in the S&P MidCap 400 index) should post profit growth of 15.8% this year, compared with an earnings growth estimate of only 7.9% for the S&P 500 index. While the price-to-earnings ratio for the mid-cap index is slightly higher—17.9 vs. 15.7 for the "500"—the p-e-to-growth ratio is identical for both indexes at 1.3.

"Mid-cap stocks have less exposure to subprime mortgages, and many of them are initiating or adding to dividends—even as some large-cap stocks cut their dividend payments," says Stovall.

What's the best way for investors to identify attractive mid-cap dividend stocks? One approach is to use S&P's Stock Appreciation Ranking System, or STARS. For this week's screen, we looked for dividend-paying stocks in the S&P MidCap 400 that also carried S&P STARS rankings of 4 STARS (buy) or 5 STARS (strong buy). Stocks with those designations are expected by S&P equity analysts to outperform the broader market on a total return basis during the next 12 months, with the shares rising in price on an absolute basis.