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Portfolio manager explains why he likes these four stocks

·Lawrence Lewitinn

If Goldilocks invested in stocks, she would be having a modestly positive year.

That’s because while large-cap and small-cap stocks are down for the year, mid caps are seeing a positive one, albeit modestly so.

The S&P Mid-Cap 400 (^MID) is in the green and beating both the large-cap S&P 500 (^GSPC) and the small-cap Russell 2000 (^RUT) year-to-date.

“The mid-cap universe is one where you get better returns than large caps at lower risk,” said Tom Kolefas, managing director at TIAA Global Asset Management, where he heads its $4.6 billion mid-cap value fund (TCMVX). “They're mature enough where they have good prospects on their own, but they're small enough that for the larger companies that need to grow, it's an area for them to acquire and move on.”

His investment style, which focuses on value, hasn’t done as well as growth mid-cap stocks over the past few years. “The underperformance has been substantial to the degree that the academics would tell you it's two or three standard deviations away from normal,” Kolefas noted, but added that he expected that to change. “Over the longer term, over 15 years, value has beaten growth.”

Within the mid-cap value universe, Kolefas sees opportunities in consumer staples, energy, and telecommunications.

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While he is not a fan of the overall consumer staples sector, Kolefas is bullish on one name in particular. Soybean processor Bunge (BG) is down 18% this year alone, but Kolefas remains long. “They're the kings of soybeans just as Archer Daniels is the king of corn,” he said. “We think it's very cheap. It has a lot of free cash flow. We think its earnings are turning up and they're making all the right investments.”

Kolefas takes a two-pronged approach when it comes to the energy sector, owning shares that are either not sensitive or else very sensitive to crude prices.

He is long Concho Resources (CXO), which is up 11% year-to-date because of its exposure to drilling in the Permian Basin in the Southwest. “These companies can make profits and have free cash flow at $30 to $35 oil,” Kolefas said. “Concho is one of the best operators there.”

He is also long Hess (HES), which he notes is more leveraged to oil prices. “It's got more juice to it on the upside if oil were to rebound to $60,” said Kolefas.

One other stock Kolefas owns is telecom infrastructure company Level 3 Communications (LVLT), which is down 5% since the start of 2016 but up 37% in the past two years.

“It's becoming a utility,” he said. “They put in the telecom equipment and then from that point on, it becomes an annuity. They have only a 5% to 6% market share throughout the entire United States. Verizon (VZ) and AT&T (T) dominate, but they're vastly losing share and Level 3 is picking up the slack.”

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