Investment professionals at Eaton Vance say valuations have moved to the point where they foresee outperformance by high-quality domestic large caps over the next three to five years.
   "We're at a point in the economic cycle where we believe quality, large-cap issues are likely to outperform going forward," Duncan W. Richardson, chief equity officer at Eaton Vance, said during a recent panel discussion in New York.
   Richardson, who is a growth investor, was joined by Eaton Vance portfolio managers Michael Mach and Judith Saryan, who are value managers.
   All three agreed that valuations and the bearing of the domestic economy point to a rebound for blue chip large caps.
   "We believe 2007 will be characterized by slowing economic trends, decelerating earnings growth, and some increase in market volatility," Richardson said. "In this environment, the best-performing stocks are likely to be found among higher-quality companies."
   Mach added that despite the outperformance by international stocks the past four years, stabilization in the dollar should allow domestic companies to keep pace. "We believe investors won't need to venture far from home to earn solid equity returns this year," Mach said.
   They noted that the valuation of large cap growth stocks have become attractive, to the point where the line between large cap growth and value stocks has become fuzzy.
   The portfolio managers agreed that arguing whether a stock is growth or value has become virtually irrelevant.
   "Stocks can be compared to horses permitted to wander back and forth between the 'value barn'... and the 'growth barn,'" Mach said. Oracle, he said, is an example of a company that has fluctuated between both camps, trading at 100 times earnings earlier in the decade-when it was clearly a growth stock-and now trading at a value-ish 14 times earnings.
   Saryan suggested that dividend growth is a new defining factor in assessing a company's growth potential.
   "Paying a dividend is a sign of quality, and not just because it's the only item on an income statement that can't be restated," she said. "We look for companies that not only pay high dividends, but those that are growing their dividends, because such companies understand that cash belongs to shareholders. It's something many companies forgot during the 1990s."