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The goldilocks trade: Pros' small, mid and big cap picks

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As Wall Street and investors prepare for next week's Federal Reserve meeting, the debate continues on where is the best place to put money to work right now.

Small caps? Mid caps? Blue chips? The mattress?

On CNBC's "Power Lunch" Friday, three market pros each named three stocks they consider great buys right now. Call it the 'goldilocks' trade for the month of September.


Lamar Villere is a portfolio manager at Villere & Company, a fourth-generation family owned and operated money management firm with $2.5 billion in total assets founded in 1911. He oversees two mutual funds, the Villere Balanced Fund and Villere Equity Fund.

Villere prefers U.S. stocks with low debt, strong cash flow with a focus on small caps he plans to hold for five years or longer.

"We think being in the best stocks in the best market is the way to go," said Villere. "We like small cap blue chips that can succeed without China growth and have less interest rate risk when the Federal Reserve makes a move.

His top pick is Financial Engines, a $1.6 billion dollar software company co-founded by nobel laureate Bill Sharpe. "It just signed Wells Fargo, AT&T and IBM as clients, and pays a 0.9 percent dividend."

Vallere also likes DST Systems for its great balance sheet and earnings visibility, plus the ability to deploy $1 billion toward accretive mergers and acquisitions. "DST has very sticky, recurring revenues, with their top five financial firms staying with them for 34 years, on average," said Villere. DST pays a 1.1 percent dividend.

His last pick is EverBank, a $2.5 billion dollar small cap bank with a branchless model focus. "It's one of the few players in this category with a geographically diversified loan pool and deposit base," said Villere. "Plus, it is growing much faster than peers in assets and deposits at twenty percent each." EverBank pay s a 1.2 percent dividend.


Kevin Toney oversees the AC Mid Cap Value Fund for American Century Investments, which has a total $143 billion in assets under management. Toney told CNBC's Power Lunch Thursday that his strategy is to take advantage of the recent volatility by "selling what is outperforming and buying what is under-performing."

Toney's top mid cap pick is trucking company, Heartland Express. "It has one of the most pristine balance sheets around," said Toney. "It is very well managed and a cheap stock."

His second equity pick is CCFNB Bancorp , a midwestern thrift bank. "This stock is a safe place to ride out a storm," said Toney.

His long-shot is Sysco, the $46 billion North American food service operator, because it has "plenty of room to grow."


Gary Bradshaw, senior portfolio manager for the Hodges Equity Income Fund, believes the macro environment for remains "okay" despite headwinds from a strong dollar and low energy prices.

"The market has just gone through a correction and selective large caps are on sale right now," said Bradshaw.

Boeing remains one of Bradshaw's top stocks due to strong demand in its commercial aircraft business. "As Boeing ramps up the 787 Dreamliner program, we think free cash flow can go from $9 to $15 over the next couple of years, with the stock heading to $200," said Bradshaw.

Home Depot is also on Bradshaw's "buy" list. "Their consumer continues to spend on their home and a robust home-building environment is a tailwind," said Bradshaw. "Home Depot has had 13 quarters of excellent same store sales growth, plus good earnings growth and a two percent yield."

Bradshaw's third favorite large cap is Gilead Sciences, on the strength of "very effective treatments for Hepatitis C and HIV. "The stock is dirt cheap at less than 10x earnings and 1.6 percent dividend pay," said Bradshaw. "We believe Gilead will make an acquisition in the oncology space that should cause their multiple to expand. We think the stock could go to $150 over the next 18 months."