(FORTUNE Magazine) – GET ACQUAINTED with some likely newcomers to next year's FORTUNE 500. A more diverse selection of medium-size companies can scarcely be imagined. A few are brash youngsters less than a decade old. Others are graybeards, in business for more than a century. They make everything from condoms to concrete mixer trucks. Their factories are in the Rust Belt, the Farm Belt, and along the concrete beltways of the suburbs. But the fastest-growing members of this group share a common insight: It pays to exploit profitable and fast-growing corners of the market before competitors wake up to the possibilities. While scores of big diversified corporations are in the restructuring shop, a surprising number of highly focused smaller companies are purring in the inside lane. Many cruise past sales and earnings mileposts with well-oiled regularity, and a few motor along at race-car speeds. Half of the firms listed on the next page are good bets to make their debut on the next 500 list. All 25 have recorded average sales gains of at least 5% for the past three years, and most have been growing at double-digit rates. Successful medium-size companies have a knack for striking gold where larger competitors see merely dross. The performance of glassmaker AFG Industries of Irvine, California, is a glittering example. Although it made headlines recently with takeover bids for Lear Siegler and GenCorp, AFG is growing rapidly enough on its own to secure a 500 berth. In the 1970s the company manufactured sheets of plain old window glass. Today more than 55% of sales come from specialty lines of tempered and colored glass. Says Chief Executive R. D. Hubbard, 51: ''We picked niches where we could be the dominant supplier. We now make 70% of the glass for microwave oven doors, and 75% of the glass for shower enclosures and patio table tops.'' Instead of competing to sell commodity glass, AFG earns the best margins in the business, and it is less shattered by cyclical downturns in construction. SOME FAST-GROWING companies outdo even AFG in their concentration on unique, high-performance products. A. Schulman bills itself as the largest independent plastics compounder. The Akron company buys resins from oil and chemical companies, then blends in colors and other additives to produce a dazzling variety of plastics. A. Schulman's customers, who make everything from skateboard wheels to lobster pots, willingly pay a premium for materials that meet their exact specifications. ''If you need soft red plastic, we'll make you some soft red plastic,'' promises C.E.O. William C. Zekan, 68. Dozens of new products, including thermoplastics for car dashboards, polypropylenes for food packagers, and flame retardant compounds for electronics firms, boosted the company's sales 22% last year to $388 million. Dominance in one area of manufacturing can be a stepping stone to lucrative new businesses. Textile maker Guilford Mills' mastery of the warp-knitting business -- an efficient and low-cost method of producing fabric -- was the key to its dramatic growth. Most manufacturers viewed warp knits, long used mainly to make lingerie, as a product with a limited market. But the recent success of North Carolina-based Guilford, which controls 60% of the warp knit business, had little to do with undergarment sales. In the 1970s, recalls 65- year-old President George Greenberg, ''We took your basic lingerie fabric and used it to design the liners for car ceilings. Now we have 60% of that market. In home furnishings we are showing manufacturers how to use our fabrics on mattresses and box springs. And we're starting to develop industrial products like water treatment filters.'' New markets accounted for 33% of Guilford's sales of $416 million last year. OSHKOSH TRUCK, in business since 1917, went into high gear in the mid-1980s when it began landing big orders to build heavy-duty military vehicles. Says ; President John P. Carroll, 47: ''We always saw ourselves as a heavy-truck maker that zeroed in on niches. We are the world's largest producer of crash, fire, and rescue trucks for airports, and concrete mixer trucks that unload from the front end. In 1979 we decided to concentrate harder on winning defense business.'' Oshkosh's ability to design and manufacture all-terrain vehicles won the respect of Pentagon generals. And the company's efficient plants gave it a competitive edge at bidding time. It won Army, Air Force, and Marine contracts totaling more than $1.5 billion. Annual sales increases since 1982 have averaged 47%, and military orders accounted for 83% of last year's revenues of $399 million. Apollo Computer's growth was even steeper. The pioneer maker of computer work stations was a venture capital start-up in 1980. Hard-charging Thomas A. Vanderslice, 55, came aboard as C.E.O. in 1984, after failing to get the top spot at General Electric and GTE. Apollo's work stations were conceived mainly for automotive and aerospace engineers. But the appeal of work stations has widened, and they have become the fastest-growing computer product around. Industrywide sales are expected to surpass $4.5 billion a year by 1990. IBM and Digital Equipment are getting in on the action. But the big boys will have trouble catching Apollo, or the smaller and even faster-growing Sun Microsystems; the two companies control 40% of the market. Boasts Vanderslice, who before long may realize his ambition to run a FORTUNE 500 enterprise: ''We penetrated Digital's customer base the same way they penetrated IBM's. We drove a wedge into an area where they did not focus their resources.'' Most medium-size companies try to avoid locking horns with industry heavyweights. Yet few are as patient as Reynolds & Reynolds, about to become the oldest new member of the 500. Founded in 1866, the Dayton, Ohio, printer controls 65% of a lucrative but mature specialty business: supplying standard forms to car dealers. For decades the company was debt free, but saw no place else to go. The competition in bigger businesses, such as bill-of-lading forms, was just too strong. ''Other companies can do those things for less than it would cost us to buy the paper,'' says C.E.O. Terry D. Carder, 52. Opportunity finally knocked last year, when Carder learned that Arnold Corp., a private printer with its own collection of specialty products, was up for sale. Says Carder, who paid $110 million for Arnold: ''They fit our mold. We * understand the things they do.'' Analysts predict the acquisition will boost Reynolds & Reynolds's sales to $540 million next year, which would have been enough to make this year's list. A major acquisition will also help Carter-Wallace push to the FORTUNE 500's ranks. In 1985 the pharmaceutical and toiletry company used profits from drugs and old standbys like Arrid deodorant and Rise shaving cream to purchase Youngs Drug Products, the manufacturer of Trojan condoms. Trojan commands 55% of the U.S. condom market, which is suddenly a high-growth business. Sales are zooming mainly because of the protection condoms provide against AIDS and other sexually transmitted diseases. Youngs's sales contributed nearly $20 million to its new owner's revenues last year. Purveying a ragtag collection of niche products is Illinois-based Newell's forte. The hardware and housewares maker, which sells everything from paintbrushes to window shades, is in the midst of a three-year acquisition binge. Its latest and biggest deal: the pending purchase of Anchor Hocking, an old-name kitchenware manufacturer, for $338 million. Despite doubts on Wall Street, Newell is convinced the deal will pay off. ''People have trouble understanding what we do,'' says C.E.O. Daniel C. Ferguson, 59. ''But we've been following the same course for 20 years. We're building a multiproduct offering for big purchasers in the retail area.'' Ferguson thinks companies like K mart and Wal-Mart want a new type of supplier: the consolidated housewares producer. ''Staple lines, not high fashion, are our bread and butter,'' he adds. ''And we don't want a product line that anybody can be in tomorrow, so we look for businesses with high entry costs.'' Taking good care of core businesses should never be far from the mind of any executive. The bosses of these FORTUNE 500 contenders roam shop floors with proprietors' eyes, and for good reason. Founding families -- through majority or sizable minority positions -- still control many of the companies, including A. Schulman, Oshkosh Truck, and Carter-Wallace. Top management holds sizable blocks of stock at most others. Like fond owners of sports cars, these executives tinker with the inner workings of their factories to make them run faster and smoother. All invest heavily to upgrade manufacturing facilities. Guilford Mills spent $20 million last year on new technology for its plants. Already a low- cost producer of finished fabric, the company is producing more of its own | synthetic fibers. AFG is expanding production capacity. Its new West Coast glass plant will boost revenues by more than $50 million. Executives also hammer the importance of keeping customers happy. Hubbard of AFG takes pride in making speedy deliveries, even on small orders. His company will readily ship a case or two of glass instead of a full truckload. Says Hubbard, ''When housing starts dropped 50%, we showed customers how to reduce inventories, and that helped us increase our market share. When business picked up, those people stayed with us.'' At Newell, Ferguson asks executives to attend major trade shows. ''It lets customers know that this is our total business,'' he says. ''I can't tell you what a plus that is.'' Restructuring, the treatment for paunchy big corporations, is rarely necessary at these agile, fast-growing companies. Unwavering faith in the strategy that got them where they are is the norm. Most would agree with A. Schulman's Zekan, who says, ''We're going to continue down the road we chose more than ten years ago. If anything, our commitment to that course will continue to grow.'' Attaining the FORTUNE 500 is a cherished dream for many. And virtually all would view being taken over as a bitter defeat. ''We want to be around here in the year 2000,'' says Carder of 121-year-old Reynolds & Reynolds. ''We believe in longevity.''

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: GROWING MIDSIZE COMPANIES HEADING TOWARD THE 500 DESCRIPTION: Principal products, 1986 sales, 1986 net income, and 1983-86 average annual sales growth rate for 25 midsize companies.