A lot of smart money managers think large-company growth stocks are getting ready to shine.
Over the past three years, small-company stocks have beaten the pants off large-company stocks, and value stocks have shellacked growth stocks.Most mutual funds specialize in either growth stocks or value stocks.
Growth stocks are those with steadily growing earnings.
Value stocks, by contrast, are cheap relative to earnings or other fundamental measures.
"Although there isn't any sector of the stock market that's cheap today, large-company growth is the cheapest sector," says Craig Litman, co-editor of the No-Load Fund Analyst, a San Francisco-based newsletter.
Paul Solli of Financial Design, a money-management firm, is more upbeat: "There's a fire sale going on in growth," he says.
Small-company value stocks returned an average annualized 19.2 percent over the past three years, according to Wilshire Associates, while small-company growth stocks returned 13.1 percent.
Large-company value stocks returned 11.3 percent in that same period.
Trailing the pack, large-company growth stocks returned only 6.8 percent.
Historically, all four kinds of stocks have periods of several years when they underperform, followed by several years when they outperform.
And since large-company growth has had such a bad run of luck in the past three years, it may due for a rebound.
Which mutual funds are likely to do well when growth stocks take off?
The Janus Fund, Yacktman Fund, Harbor Capital Appreciation, and Vanguard U.S. Growth all specialize in growth stocks.
Janus is probably the most conservative of the group, while Harbor Capital Appreciation is the most aggressive.
Jim Craig, manager of the Janus Fund, is buying stocks with rising earnings such as Pfizer and Wal-Mart, which is selling for less than it did two years ago.
"When the economy slows down a bit, growth stocks will take off," he predicts.
While investors may do well to tilt their portfolios toward large-company growth, it's best to always hold funds that provide at least some exposure to all sectors of the stock market: large-cap and small-cap, growth and value.
Understanding that these sectors each go through good times and bad times also can help investors avoid the mistake of dumping funds when the sector they invest in is going through a rough period - as large-company growth is now.