Amid the sturm und drang of the economic crisis, many investors have naturally been too skittish to invest in stocks-even as stock prices have boomed. As Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., said at a February 10 conference in New York, the stock market has almost doubled since the market crash and yet there was still an ebb tide in U.S. equity fund flows continuing into 2010.

As investors inevitably get over their fear and wade back into the market (they already seem to like emerging markets), it is likely to reignite the growth-versus-value debate, as investors ask which sector deserves a bit more weight and attention if the market is poised for momentum. The extra liquidity in the market and the burgeoning demand from emerging markets seem to reinforce this feeling that there will be a growth spurt in U.S. large-cap growth equities.

But that also depends on how you gauge the health of the economy. Despite the stock market rebound, Americans still writhe in the teeth of stagnant economic recovery, hovering somewhere between wariness and hope. GDP is expected to grow moderately at under 4% this year. Americans still regard with walleyed frustration the mixed unemployment signals. They still smart from slumping home prices and generally worry about their wealth as they try to deleverage their own households. In such an environment of muted growth, it might seem a bad time for growth stocks. Or does it?

Robert Turner, manager of the Turner Large Cap Growth Fund (TSGEX), says growth stocks are actually bound to outperform in a sluggish market because their very nature is to outpace everything else when the broad economy is limping along. Such companies anticipate earnings per share growth over three-to-five years, he says, which means they often sport some major advantage regardless of what the market is doing. They boast new technologies, or have some lock on developing overseas markets. They might be champions in their markets, like Teva Pharmaceuticals, a generic drug company set to explode as people age and governments turn to cheaper health care alternatives. They might be giants like Apple, which is still selling iPhones and iPads like cups of roadside lemonade on a hot summer day. Or it might be a company like FedEx that's growing abroad, its cheerleaders say, and ably pushing costs through to its customers, even though the threat of higher oil prices looms large.

It sounds counterintuitive, admits Turner. But he says it's value stocks that actually benefit more from the economic salad days-especially those companies in the materials, energy and financial areas that need the big tailwind at their back. Meanwhile, "when you've got only modest economic growth, which we have now, you have a situation where investors [prefer] those companies that are able to grow their earnings even without economic assistance."

He name checks Apple, a staple of several growth funds: "We've been saying for a while that Apple is going to earn $25 per share this year, regardless of the U.S. growth."

But there are different ways to read the tea leaves: Do you think the market is picking up or not, and if it is, do you really think growth would benefit more than value?

Some note that growth might have already had its run, oddly enough. In the Morningstar fund universe, large-cap growth funds returned 15.53% in 2010, outstripping both large-cap value funds, which returned 13.66%, and the blended categories, which returned 14.01%, according to David Kathman, a Morningstar fund analyst. (Growth also persevered in the smaller categories.) Turner agrees that the growth stock run goes back to 2007. Three-year returns for the S&P 500 growth index were almost 3%, and almost negative by the same amount for the S&P 500 value index. You might not have noticed the line charts, of course, since they were scumbled by volatility and the 2008 maelstrom.

If you're a growth cheerleader, however, it certainly looks like Candyland out there for cheap stocks on a forward earnings basis-no matter what your stripes, many large-cap stocks are looking cheap. There's a lot of growth to buy, some of it offering dividends. So maybe you can have your growth and eat it, too.

Michael Cuggino, who helms the Permanent Portfolio (PRPFX) a five-star Morningstar portfolio, invests in a variety of assets, including bonds, gold, silver, REITs, etc. But he's also got a pure stock fund. And for his equity drafts, he's seeking growth at a good price.
"Our view is that there are opportunities all over the place in the U.S. market," he says. "It is in fact being aided by liquidity-the monetary policy in the U.S. right now-as well as to a lesser degree abroad. But having said that, stock prices are reasonable right now in the U.S. They've been supported by corporate earnings; there is tremendous liquidity that still could come into the market and expand multiples. And the risk/reward for owning stocks right now versus other asset classes, like say bonds, is greater."

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