3 Top Stock Picks from America’s Leading SMID-Cap Fund

There are small-cap funds, and there are mid-cap funds, and those invest in both. These are what you call SMID-Cap funds. Investors can find  SMID-Cap top stock picks from these funds for the long haul. 

One of the best available is the Eaton Vance Atlanta Capital SMID-Cap Fund (MUTF:EAASX), an actively managed fund that allows its small-cap stocks to stay in the fund when they become mid-caps and mid-cap stocks to stay in after they become large caps. 

 “This strategy evolved back in the early 2000s, when we kept having to sell companies due to their appreciation,” Portfolio manager Matthew Hereford told Barron’s in a January interview. Hereford has run the fund since 2004 with co-managers William Bell and Charles Reed. “We had one of our clients say, ‘Hey, can you just let your winners run? If you still like the company, don’t sell it.’”

As a result of the fund’s buy-and-hold strategy, it hangs on to the average stock for seven years. Over the past 15 years, it’s beaten 99% of Morningstar’s Mid-Cap Blend funds, generating a 14.9% annualized total return. 

Here are three stocks to buy from the fund’s top 10 holdings.    

Morningstar (MORN)

Morningstar (NASDAQ:MORN) is the fund’s fourth-largest holding, with a weighting of 3.36%. 

Morningstar has been an invaluable resource to me in my freelance writing career. It’s got a lot of helpful information for investors. Of course, it’s more than just a website full of data and published content.

The company started in 1984 when 27-year-old stock analyst Joe Mansueto observed that regular investors didn’t have the same information as Wall Street professionals. He decided to set up shop and deliver this information. 

Now 66, Mansueto is Executive Chairman, but remains actively involved in the business, owning nearly 40% of its stock.

The company has three operating segments: Data and Analytics (70% of revenue), Asset and Index Solutions (20%), and Credit Ratings and Solutions (10%). Its Data and Analytics business generated 92% of its Q3 2023 adjusted operating income. Products in this segment include PitchBook, Morningstar Data, and Morningstar Direct.

Morningstar’s trailing 12-month free cash flow is $156.9 million. 

Markel Group (MKL)

Like W.R. Berkley (NYSE:WRB), the fund’s largest equity holding, Markel Group (NYSE:MKL), the fifth largest, are both insurance companies. However, Markel would be best described as a miniature version of Berkshire Hathaway (NYSE:BRK.B).

It utilizes three financial engines to grow its business: Insurance, Investments, and Markel Ventures. 

The insurance business offers specialty insurance products in niche markets such as highly specialized professionals, wind and earthquake-exposed commercial properties, equine-related risks, transaction-related risks, classic cars, credit and surety-related risks, collateral protection risks, and marine, energy and environmental-related activities. Its products focus less on price than service and expertise in these areas. 

The specialty insurance business accounts for 87% of Markel’s 2022 gross premium volume, while reinsurance accounts for 13%. 

The investment engine had $30.9 billion in invested assets as of Dec. 31, 2023, up from $27.4 billion in 2022. Meanwhile, its Markel Ventures engine invests in controlling ownership stakes in various high-quality businesses that operate in various industries.

In 2023, Markel had operating revenue of $15.80 billion, 35.3% higher than a year earlier. Its insurance operations contributed 54% of its overall revenue. Markel Ventures accounted for 32% of the year’s revenue, while investments accounted for 14%. If you are looking for top stock picks, you don’t need to look any further.

Teleflex (TFX)

The last of the three stocks from the Eaton Vance fund’s top 10 holdings is Teleflex (NYSE:TFX), a Pennsylvania-based medical devices company with more than 23,000 products sold to more than 80,000 customers worldwide.  

The fund has owned Teleflex since 2014. It recently bought more stock due to an attractive valuation caused by lower sales of its UroLift implant used to treat enlarged prostates. Revenues for the product were down during the pandemic due to the discretionary nature of the surgery. 

“Revenue hasn’t fully recovered yet, Hereford says. That’s why the stock fell from a peak of $449 in 2021 to $178 in October of last year. That’s despite the fact Teleflex has other successful products, and losses from UroLift are now priced into the stock. ‘We’re now essentially getting that UroLift business for free,’ he says.”

Despite the slowdown in UroLift revenue, the company grew its Q3 2023 revenue by nearly 9% to $746.4 million, increasing revenue across all four of its reportable operating segments. 

The company expects its 2023 adjusted earnings per share from its continuing operations to be $13.40 at the midpoint of its guidance. It trades at 18.8 times 2023 EPS, considerably less than its five-year average price-t0-earnings ratio of 41.3.  It is easily one of the top stock picks you can grab right now.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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