3 Mid-Caps For Good Returns

Appraising international economic conditions and determining the next investment step is a challenging task these days, with the prevalent uncertainty and the persistent unfavorable operating environment clouding the growth prospects of the world economy.

Amid the global gloom, the U.S. economy appears to be the only shining star by virtue of its growth prospects backed by an accommodative monetary policy, steady decline in unemployment, stable inflation rate and rising domestic demand.

After the 2008 financial crisis, investors naturally opted for the safest and most steadfast large-cap stocks for their portfolios. However, it would be rational to say that the U.S. economy has come a long way since the economic downturn and is in the recovery stage.

Doesn't this change in the state of the economy call for a transformation in your investment perspective? Though large-caps remain the safest bets, we cannot ignore the fact they may be overvalued. This seems to be the right time to look beyond the blue-chips and venture into unexplored territory.

Mid-Cap: The Overlooked Territory

It is an established fact that mid-cap is the best asset class to put money in when the economy is rebounding. Why? For starters, mid-cap companies are firms with market value between $2 billion and $10 billion. These stocks possess the growth potential that large-cap companies lack along with strength and stability absent in small-cap companies. In short, they offer the "best of both worlds."

Similar to small-cap firms, mid-cap companies tend to have an entrepreneurial approach towards business and are usually more adaptable to changes, which help them capitalize on unexpected opportunities with more flexibility than large-cap companies. With a seasoned management team, strong balance sheet and well established products, mid-caps tend to have the correct balance required for development.

Research the "Under-Researched" Stocks

Looking into the numbers, the widely recognized Russell Midcap Index climbed 5.9% in the fourth quarter of 2014 and 13.2% for 2014. The figures look promising when compared to the large-cap S&P 500, which gained 4.9% in the same quarter and 13.7% for the year.

The strengthening U.S market will further clear the path for mid-cap stocks growing this year. Primarily, easy access to capital and fundamental strength empowers mid-cap companies to make the most of this changing situation.

As the market stays focused on large-cap stocks, the mid-caps usually remain under-researched and thus unnoticed. Here's you chance to take a good look at some overlooked players.

3 Hidden Mid-Cap Gems

We have handpicked three mid-cap stocks that possess a long-term growth consensus estimate of more than 15%, a favorable Zacks Rank and have performed better than the S&P 500 year to date. These stocks also belong to the top-performing industries.

The top-performing industries are those with a Zacks Industry Rank of less than 35.

(See the performance of Zacks' portfolios and strategies here: About Zacks Performance).

Let's take a look at these stocks:

Alaska Air Group, Inc. ALK: With a market capitalization of $8.2 billion, this Zacks Rank #1 stock is an airline holding company based in SeaTac, Washington. Through its two principal airline subsidiaries – Alaska Airlines, Inc. and Horizon Air Industries, Inc. – the company services the needs of passenger and cargo airline markets of the Pacific Northwest.

Alaska Air Group belongs to the top-ranking Airlines industry, with a Zacks Industry Rank #11 (top 4%). The relative price change score of 2.08 indicates that the stock outperformed the S&P 500 on a year-to-date basis.

To top that, the future of the company looks promising if we look at its expected long-term (3-5 years) earnings per share growth rate of 20.3%, which is higher than the industry average of 17.6%. While lower fuel prices are benefiting the entire airlines industry, Alaska Air Group stands strong amid the intense competition with its revenue maximization target and effective cost control warranting the attention of investors.

Harman International Industries Inc./DE HAR: This Connecticut-based audio and infotainment equipment company, which designs, manufactures and markets audio equipments, has a market value of $9.4 billion. A relative price change score of 26 marks this Zacks Rank #1 company as one of the top gainers in the S&P 500.

With a long-term earnings per share growth estimate of 19.7% compared with the industry average of 13.4%, Harman International Industries' prospects for future development look optimistic, making it an attractive investment.

Apart from being in the better-performing Audio/Video Production industry that carries a Zacks Industry Rank #15 (top 6%), the strength of this company lies in its low debt level, growing product pipeline and robust patent portfolio. With a rise in an industry trend for cars providing consumers with internet-connected audio and entertainment choices, Harman International Industries has a wide scope for pushing the envelope.

Acuity Brands, Inc. AYI: This Zacks Rank #1 stock, which is the world's largest lighting fixture manufacturer and includes well-established brands, has a market cap of $7.1 billion. The Georgia-based company is riding high on the rising demand for smart lighting solutions such as LED products. Therefore, its relative price change score of 14.4 does not come as a surprise.

Acuity Brands belongs to the top-performing Building Products-Lighting Fixture industry, which carries a Zacks Industry Rank #31 (top 12%), making it difficult to ignore from an investment perspective.

Moreover, long-term earnings per share growth estimate of 15.8%, higher than the industry average of 12.3% assures that the company with its technological focus and innovations is well positioned to capitalize on the opportunities available in the ‘Internet of Things' market.