After a few good years as media darlings, mid-cap value fund managers are finding themselves on the ropes. Luckily for advisors and investors, they seem to have a better safety net than most of the field.

Compared with their mid-cap growth colleagues (down 16.1% at the half-year mark), mid-cap value managers have given up a good deal less (-4.1%). They maintain that their stomping ground-the roughly 1,200 companies with markets caps between $1 billion and $2 billion-still is poised to deliver better fundamentals and returns than much of the rest of the market.

It may not be salad days ahead, the more honest managers we talked to admit, but it's not Armageddon either. Instead what they see is a return to normalcy, not the growth-dominated 1990s. Their prediction? A greater need for value-oriented funds and a growing likelihood that value will outperform in some quarters and some years, making it an asset-allocation necessity.

The numbers for these managers, who evaluate the vital signs of mid-size companies whose stocks have the potential of rebounding, tell a convincing story. "You can have many opinions, but they still have to be based in fact," says Dan Kantor, lead manager of the Liberty Select Value Fund, which was down about 3% at the mid-year mark, after handing in a five-year average annual return topping 10%. "The fact is the P/E ratio for mid-cap growth stocks is still 50% higher than it is for mid-cap value stocks, and the price-to-book ratio is twice as high. I believe that means we'll find growth, but it will be much cheaper."

To find company stories they can believe in, Kantor and his co-manager Jeff Kinzel spend as little time in the office as possible. "Traveling to companies is the surest way to achieve independence from sell-side research," Kantor says. "Independent judgment is key." It's not enough for them to find a company they think is cheap. They have to believe there's a management team willing to do something about the undervaluation.

They bought Newell Rubbermaid in early September at around $25 per share, and the stock has climbed to $34 based on the strategies being put in place by a turnaround team headed by a former Black and Decker executive. The result is centralized production and procurement, less management fat and key product placement in retailers like Wal-Mart and Home Depot.

Kantor says he avoids speculation and risky bets, so don't expect soaring over- or underperformance. He is trying to hit what he calls "lots of singles and doubles" to add 2 % or so to the mid-cap value benchmark every year.

T. Rowe Price Mid-Cap Value Fund manager David Wallack pulled off a one-year return of 28.65% (compared with Lipper's Mid-Cap Value Funds Average of 17.68%). His three-year average annual return (19.04%) and five-year average annual return (15.78%) weren't too shabby either.

Wallack uses bottom-up quantitative screens to narrow his watch list before he starts kicking tires. "I use almost all the analysts at the firm," he says. There are more than 45 at the Baltimore-based fund company. At ground level, the manager wants a clear understanding of what is driving profitability at companies, which he calls the lifeblood of a company-as opposed to its reported earnings.

Wallack likes a strong balance sheet, a muscular franchise and hidden or unlocked value that the market is missing. He began buying Aetna, the Cromwell, Conn., healthcare insurer, about two years ago in the $20 range. He was attracted to its strong cash position. Also, Aetna, the No. 2 health insurer in the country, held two times as much real estate as its biggest competitor, United Health. With the fundamentals in place, Aetna's aggressive cost-cutting and price-raising strategies convinced Wallack the stock was a good buy. It is now trading in the $50s.

Another overlooked value story that has gotten his attention is the Washington Post, which has been seen by Wall Street as a boring, slow-growth company with little potential. The assessment, Wallack says, is just wrong. "It has deployed cash flow from the newspaper business judiciously and profitably into TV stations, educational enterprises and other areas."

He's bought the stock, which he believes will trade at more than $700 a share, at between $500 and $550. "They'll continue to do what they do so well, which is allocate their capital wisely and buy and sell things, which they do exquisitely," Wallack says.

What Wallack sees is a return to a balance of growth and value in the marketplace. "If I were playing the odds, I think the market will gravitate between growth and value for some period of time, as it has historically. The 1990s and 2000 were an anomaly," says Wallack, who expects stocks to tread water for a period of time. Still, he adds, it is still a ripe time for finding interesting mid-cap value stocks.

The stress that the telecom technology and media industries are undergoing, for example, is providing interesting risk-reward opportunities, Wallack adds. A true contrarian, Wallack is ready to wait out an overcapacity in telecom for what he says is a turnaround, for instance, even if it takes a year or two.

Although stocks overall are still relatively very expensive, Wallack says that "thankfully we don't have to buy the market.

"We are really trying to zero in on the companies that represent the best risk and reward. There's an old expression," says Wallack, "that it's a market of stocks not a stock market, and that is really the way that we try to approach managing this fund."

ABN Amro Talon Mid-Cap Fund manager Thyra Zerhusen probably couldn't be more different of a manager than Wallack-she invests in just 35 stocks at any given time, compared with Wallack's 100-plus positions. But they agree on two things: There really are opportunities in telecom technology and media, and neither growth nor value will get a free ride in the next five years.

Zerhusen, who handed in a 14.2% return last year but had fallen to -18% by July 2, says she's not changing her stock-picking techniques despite seeing a sea change in investor perception. "I think there's a tremendous loss of confidence in large cap, and it makes mid-cap more attractive right now," she says.

Whether it's Worldcom or Enron, the scandals roiling large cap companies just aren't impacting the mid-cap market the same way. Still, she says, "People have to be marched to jail in a very public way because they are crooks." It's the only way to begin to rebuild public confidence in the nation's largest corporations, she adds.

In the meantime, Zerhusen will continue to screen for mid-cap value stocks, which she does as a solo operation looking for favorable 12-month price-to-earnings ratios, which she often measures against a company's projected profit-growth rate for several years out. As a result, her portfolio's average P/E (23 recently) is significantly lower than the mid-cap market overall, while her main holdings' profit and-growth rates (at 15%) tend to be a bit better than average. She's looking for shares that have a one-to-one debt-to-equity ratio or below, and seeks to avoid long-term debt that tips the scales at 30% or more of a company's capitalization.

Zerhusen says that after more than 25 years of covering mid-cap companies, she knows most of the top managers. That helps when deciding who is and isn't trustworthy, she says with a laugh. It also gives her access that some newer managers probably don't have, and she doesn't hesitate to use it.

Or go back for seconds, for that matter. She bought Andrew, a wireless infrastructure company, at around $14 a share back in 1999 and sold it at $36 a year later. She's buying it again at $14 to $17 and thinks it will rise to $20 or more a share within the year. "I'm still waiting for this story to be discovered a year-and-a-half later," Zerhusen says. "Their new product is a power amplifier for handsets, and they bought Celiant to get the technology, which is a major player. They have earnings, and they're selling at 1 times revenues, which is cheap," she says.

In another example of daring diversity, Stan Majcher brought the Hotchkiss and Wiley Mid Cap Value Fund into mid-year with a return of -2%. The fund, which he took over in 1999, has a three-year average annual return of 18% and five-year average annual return of 16%. His claim to fame? The fields of energy and their collateral products. He bought oil tankers in 1999 when the industry was hardy titillating dinner conversation. He found TeeKay Shipping in Vancouver and started buying the stock at $15 per share. He sold it at an average price of $34 in 2000 and now owns it again. "Oil production was way down, there were too many tankers and the rates for them had dropped dramatically, but we believed at some point OPEC (Organization of the Petroleum Exporting Countries) would have to increase production. In fact, that played out quickly," Majcher says.

Today, the stock is very inexpensive, trades at book value and generates a lot of cash, so Majcher once again is buying and awaiting the rebound. As for the future, he's predicting a return to realism. "Where do we think the market will be year end? As a firm, we see the market fairly valued, if you're looking for 7% to 8%."