These stocks are the sweet spot for the market

Published Fri, Feb 20 201511:50 AM ESTUpdated Fri, Feb 20 201512:04 PM EST

Mid-cap stocks could be the place to be in 2015 as investors chase growth stocks and seek alternatives to large international conglomerates, which are getting hit by a strong dollar. So far this year, the S & P MidCap 400 index is leading the gains among the major averages, up 3.8 percent, compared to an increase of 2 percent for the S & P 500 and the small-cap Russell 2000 . "Large investors have started to rotate funds and decrease their exposure to the S & P on the perception mid-caps have less reliance on multinational sales," said John Stoltzfus, chief investment strategist at Oppenheimer. "It's also a favorable space to find candidates for potential acquisitions when large-cap companies have shown a preference for M & A rather than organic growth." Mid-cap companies range in value from $750 million to $3 billion and are not as widely covered by Wall Street analysts as their large-cap counterparts. That aspect, for some investors, provides opportunities for market inefficiencies to exploit. Read More Wall Street gives Wal-Mart wage hike thumbs down In fact, mid-caps have been the leaders since the market bottom in March 2009, up 273 percent versus a return of 210 percent for the S & P. "Mid-caps are getting a vote from investors as an opportunity for diversification and the trend will continue into 2015," adds Stoltzfus. "Some of these companies also possess great attributes for becoming large-cap names in the future." The money play: The most popular mid-cap ETFs are the iShares Core S & P Mid-Cap ETF , the SPDR S & P MidCap 400 ETF and the iShares Russell Mid-Cap ETF . The following is a list of the mid-cap stocks that are well-covered by Wall Street and are expected by the analysts to have large gains over the next 12 months. In addition to the strong dollar, an expectation of an earlier rate hike from the Federal Reserve over the last month is causing a rise in rates and in turn, smaller names, less beholden to borrowing costs, to outperform large caps. The S & P MidCap 400 index hit record highs this week. The small-cap benchmark, the Russell 2000 index, did as well. The largest holding in the iShares Core S & P Mid-Cap fund is Skyworks Solutions , which has more than doubled in the past year. Other major positions include Equinix , SL Green Realty , Henry Schein and Hanesbrands —all up double digits in the same period. Read More Tech's March Madness is coming. What to buy Some see the recent leadership from this group as a negative for the future. The S & P 400 is currently trading at extreme overbought levels, wrote Bespoke Investment Group in a recent note to clients. Similar overbought levels as now led to pullbacks of between 1 percent and 8 percent the last two years. Source: Bespoke Investment Group On a valuation basis, the S & P MidCap index is trading at a trailing multiple of 22.6, while the average ratio back to the 1950s stands at 21. "I would avoid the mid-cap space right now, and probably avoid adding any new positions in the short term to equities as they are getting a bit ahead of themselves," recommends Paul Hickey, co-founder of Bespoke. "If we do see a pullback in the low single-digit percentage-point range though, that would be the time to add exposure."

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Mid-cap stocks could be the place to be in 2015 as investors chase growth stocks and seek alternatives to large international conglomerates, which are getting hit by a strong dollar.