Of the three major asset classes, the mid-cap stocks have held up the best during the 2008 selloff. The mid-cap sector has been known to ride the rallies higher and hold up better during rough patches, so why not ride the wave of the asset class?
To help identify which mid-cap stocks are doing well we can implement the "piggyback" strategy. We'll let a top mid-cap exchange-traded fund do the leg work for us; in this instance I'll use the Vanguard Mid-Cap Growth ETF (AMEX:VOT) to identify some potential mid-cap winners.
Energy is the Name of the Game
Consol Energy (NYSE:CNX)
Consol energy is one of the largest coal companies in the U.S., and it has been benefiting from all-time highs in oil. Over the last twelve months the stock is up more than 100% and has risen an amazing 1,500% since hitting a low in 2002. Even though the green movement is pressuring coal due to environment threats, the demand remains high with oil at such lofty levels. The other positive is that the U.S. has an abundance of the coal, and, therefore, does not have to rely on foreign countries. (To learn more about the energy sector, see Oil And Gas Industry Primer.)
Fluor Corp. (NYSE:FLR)
Fluor is a leading engineering and contracting firm that has operations around the globe. As the infrastructure buildup globally has been booming, Fluor has been able to get in on a number of large contracts. The company generates about 50% of its revenue from the oil & gas industry, which is a good thing with oil surging to new highs. Fluor is also branching out into alternative energy, which is the future. In June, Fluor won a joint $350 million contract to build a wind farm in the UK. Even if the economy continues to lag, infrastructure is one of the areas that should be able to weather the storm.
McDermott International (NYSE:MDR)
This global engineering and construction firm concentrates its efforts on the oil & gas, power generation, and government industries. Through its subsidiaries, the company is positioned well to take advantage of several angles of the oil boom. The reinvestment of profits from the energy companies back into drilling will benefit McDermott. Or, if the U.S. decides to go nuclear, one of its subsidiaries concentrates on power generation, including building nuclear power plants. The stock has not done much in 2008, but remains a few points from an all-time high.
Southwestern Energy (NYSE:SWN)
Southwestern Energy explores for and produces natural gas in the Southern U.S. In 2007, the company reported proven reserves of more than 1.4 trillion cubic feet of natural gas. Natural gas prices do not garner the attention of oil, but in 2008 the natural gas futures have out-gained that of the crude futures. Similar to coal, the beauty of natural gas is that the U.S. sits on top a large reserve and does not rely on getting it from foreign countries. (To get more on energy related investments check out Fueling Futures In The Energy Market.)
Cummins (NYSE:CMI)
Cummins is the world's leading manufacturer of large diesel engines that power anything from school buses to mining and construction vehicles. The large construction and mining business around the globe continues to flourish and has kept the demand for Cummins engines high. The worry is that a global economic slowdown will hurt the company's infrastructure business as demand for new engines ceases. As a long-term play CMI is attractive because it is inevitable the infrastructure buildup will continue in the coming years.
Alternate Option
Of course, if this volatile market scares you away from individual stocks, there is always a plethora of mid-cap ETFs that will give you exposure to the entire asset class. My favorite right now is the Vanguard Mid-Cap Growth, which we used for this exercise.