But many leading equity investors are increasingly convinced that the winning streak small- and mid-cap investors have experienced is coming to an end. From 1999 to the present both small-cap and mid-cap indexes have posted gains while the Standard & Poor's 500 Index has slipped in value.

Even within the S&P 500 itself, there has been a noticeable difference. Between 2000 and 2003, the 100 largest stocks fell 18.3% in value while the smallest 100 appreciated 48.5%, according to Wellington Management Co. "We believe that large-cap stocks will be a good place to invest over the next six to 12 months," says Brian Bruce, head of equity funds at PanAgora Asset Management.

What has been particularly striking to several experts has been the disparity between blue chip stocks since the bear market touched bottom in October 2002 or March 2003-take your pick. Since then, smaller speculative stocks soared in value, at least until this summer, while the big names moved slowly upward.

In an economic environment where growth is hard to come by and interest rates are set to rise, stock price valuations may just be a whole lot more important than they have been in a long time. Experts often say earnings and dividends are what drive stock prices.

Examined from another angle, however, one could just as easily argue that it is the contraction and expansion of price/earnings multiples that is the primary cause of changes in equity price movements. That is the view of Jonathan Golub, chief equity strategist at JP Morgan Fleming. "From 1962 to 1982, P/E multiples went from 22 to 7," Golub says. "From 1982 to 2000, they went from 7 to 30."

So if multiples drive stock prices, what drives multiples? Largely inflation and interest rates, Golub argues. In fact, earnings may be less important in determining long-term returns than many folks think. Some observers like Warren Buffett have maintained that earnings actually rose faster in the 1966-1982 period than in the 1982-1999 era.

Like many observers, Golub thinks that the market is going to have to grind out modest 6% to 8% annual returns for the next 5 to ten years. If he and the others are right and big stocks are favorably positioned at this juncture, then getting the big stocks right could be the skill that separates portfolios with superior returns from the rest.

"Large caps will grow faster because there is a global recovery and they can benefit from the [weak] dollar," says Rand Alexander, a senior equity manager at Wellington Management who also serves as manager of The Hartford Stock Fund. "The large-cap premium has disappeared in the last four or five years, and they are reasonably priced."

Another factor weighing in their favor is the potential for dividend increases. "Investors just haven't focused on it yet," Alexander says. For example, Citigroup has doubled its dividend in the last 12 months, and companies like Costco, Viacom and Microsoft have all just introduced dividends for the first time. AIG, trading at about 14 times this year's expected earnings, has raised its dividend 35% in the last year.

According to Alexander, if federal taxes on dividends remain at the current 15% level, the payout ratio on the S&P 500 could return to its historic level of 40%, up from the current level of 30% or 31%. "Over the long term, dividends have accounted for about 40% of total return," Alexander explains. "But over the last 20 years, it was between 10% and 15%."

Even companies with huge capital spending obligations have room to raise dividends. "Pfizer raises its dividend 14% [this year], and spends $7 billion on research and development," he notes.

One factor that spooked investors away from large-cap stocks is the so-called "law of large numbers," the theory that the larger a company becomes the harder it is to grow at an 8% or 10% annual rate. "Procter & Gamble says their business is scalable and they think they can be more profitable at $80 billion a year than at the current level of $50 billion," Alexander continues. "Their growth rate is 10% [or slightly higher], and that's not bad if you also get a dividend."

Nonetheless, Alexander acknowledges that investors' expectations still suffer some lingering effects from the 1990s bubble. "They are looking for the next new thing, and we don't think there are that many opportunities," he says.

Like others, Rob Arnott, manager of the PIMCO All-Asset Fund, was amazed when many of the excesses that were on display in the late 1990s returned in 2003, albeit in a muted, milder fashion, as tech stocks grabbed the leadership position in the recent mini-bull market, only to give most of their gains back in the last few months. One issue that illuminates the predicament technology companies face is the brouhaha over expensing stock options.

"I'm in favor of stock options because I think they are a great way to align the interests of shareholders and managements. But they are an expense," Arnott declares. "Technology companies would like to pretend that stock options are free because, if they are expensed, it would wipe out almost 100% of most tech companies' earnings. The emperor has no clothes. On the other hand, if they were expenses, they would only reduce about 10% of the earnings at other companies." That is one reason why Arnott believes a shift toward value will pay off in a market where opportunities are likely to be limited for an extended period.

Golub, of JP Morgan Fleming, is equally unenthusiastic about tech stocks. "The only technology that is a growth area is the current technology," he observes. "The assumption on Wall Street is that whatever is hot will always be hot. But look at all the great inventions over the last century-farm equipment, electrical appliances, cars, planes and television sets. They are all value sectors today."

Indeed, Golub thinks only one growth industry is a perpetual growth business-health care. "Everybody wants to live longer," he declares, adding that he doesn't know which health care sectors, including Big Pharma, will be tomorrow's darlings.

One advantage some large multinational companies enjoy is a dominant brand and market position. "If they have a brand and superior technology to retain their advantage in a rapidly changing market" they can often erect major barriers to entry, explains Bill Wilby, head of equities at OppenheimerFunds.

Another critical factor contributing to a company's success is management. But Wilby cautions that investors can sometimes assign too much weight to it. Studies have shown that when a rock-star type of CEO who has had a phenomenal track record at one company moves on, he often comes up short in his next position.

In some industries, the human capital that really counts resides several levels below the CEO. Take a pharmaceutical company like Johnson & Johnson. "They have great management, but to own a large drug stock you have to believe in the [new drug] pipeline," Wilby says. "And J&J doesn't have a great pipeline." Instead, he thinks Novartis and Roche have pipelines providing them with much greater growth potential.

Investors in the 1990s came to love charismatic CEOs like Jack Welch, but the whole CEO cult may have gotten out of hand. "Over ten years, management shouldn't matter that much," says Golub, "because CEOs don't last ten years and laggard CEOs get replaced."

It may seem incongruous, but in certain commodity businesses like financial services, management really can make a huge difference. "In financial services, everybody is basically selling the same product," Wilby says.

The financial services CEOs who really understand capital allocation possess a huge advantage. He cites Fred Goodwin of Royal Bank of Scotland, Sandy Weill of Citigroup and Jamie Dimon of Bank One (which recently acquired JP Morgan Chase). "He [Dimon] understands capital allocation, and his goal is to overtake Sandy Weill because he used to work for him," Wilby says.

Some of the trickiest situations in big-cap investing involve turnarounds. That's because many turnarounds never materialize. And if an investor waits until it does become reality, they are usually too late.

One of Wilby's bigger turnaround success stories was investing in British Petroleum 14 years ago. "BP has collected a great portfolio of assets, some in pretty ugly zip codes," he says. "They understood the problem of declining production in non-OPEC areas, and they were early and astute in getting into Russia."

Wilby, a global investor, is starting to find several other turnarounds outside the United States. Ericsson, the Swedish cellular telephone manufacturer that was outmaneuvered by Finland's Nokia in the 1990s, is staging a dramatic comeback. "They've finished an enormous amount of cost-cutting and they are positioned for a turnaround in 3G spending," he asserts.

Signs are surfacing that workers in Germany and France are suddenly ignoring the wishes of their union bosses and politicians and voting to extend their workweeks. "Workers in Europe have said in the last few months that they are willing to work longer for less money to keep their jobs," Wilby says.

One of his favorite plays is Siemens, the giant German electrical manufacturer. "They are in great businesses, wireless handsets and semiconductors, and there are huge costs that can be taken out of this company," he says.

Figuring out what large company stocks to avoid may be just as much of an art as deciding what to buy in the next five years. Looking at yardsticks like free cash flow and return on invested capital can offer investment managers some important screens. Speaking on this subject at Morningstar's annual conference this past June, Selected Funds' Chris Davis cited the importance of return on invested capital. If Motorola had managed to earn a reasonable rate of return of 10% on its invested capital over the last ten years, it would be earning $1.50 a share today, not a measly 40 cents.

In general, many managers are leery of commodity businesses like paper, steel, airlines and, more recently, telecommunications. "The telecom business has too many players, too much capacity and too little earnings growth," argues Alexander, manager of The Hartford Stock Fund. As with all commodity businesses, it becomes very hard for different companies to differentiate themselves on anything besides price, creating a contest to become a low-cost provider.

Other warning signs Alexander cites are when there is a disconnect between what management says and what's happening in the marketplace, or when a company starts to stray from its formula for success. "Pressure from Wall Street and investor expectations can make managements do foolish things," he says. "You don't want to have your business driven by Wall Street. Big companies are better off because they don't need Wall Street for cash."

Finally, some observers like Golub and PanAgora's Bruce believe there are opportunities to exploit gaps between perception and reality in various industries. For example, in the consumer discretionary retail arena, PanAgora favors Radio Shack, which was down 13.5% for the year as of August 9 compared to the sector average of -3.7%. Radio Shack's P/E ratio is 12.8, while the sector average is 18.4. Twenty of 24 analysts have revised their estimates upward on Radio Shack. "This change of sentiment will cause multiples to expand," Bruce says.

He contrasts Radio Shack to Circuit City, Wall Street's current darling in this business. Circuit City stock has climbed 24.4% for the year through August 9, and its P/E multiple has ballooned to 34.1, while analysts' revised earnings estimates have been largely negative. Bruce believes multiples will back toward the industry norm.

Every industry has its list of favorites and losers. The drugstore business has Walgreens and Rite Aid, the pharmaceutical business has Pfizer and Bristol-Myers Squibb and the discount store business has Wal-Mart and Kmart.

Typically, the price differentials between the winners and losers are huge, sometimes too huge. Is that gap justified? "Often the businesses are similar but the P/E multiples vary around the averages," Bruce says. "For each firm, there is a perception of what the business can do. If people get very optimistic or too excited they can make it too expensive."

Wal-Mart probably is a greater company today than when it was Wall Street's darling in the 1980s, but it has captured such a huge chunk of the nation's retail sales its growth rate has been moderating for years. "A key problem investors face is that the returns of the future may become a far cry from returns of the past," Bruce says.