Think Large-Caps, Emerging Markets

Robert W. Smith, portfolio manager of the T. Rowe Price Growth Stock Fund, believes larger, diversified companies are the place to be now as the economic cycle winds down. The good news, he says, is that they're cheaper than they have been in a long time after spending the last several years in the shadow of smaller-company stocks.

· Large Companies vs. Small Companies: Large-cap growth should outperform over the next three to five years because we think that their growth rates should be higher . . . partially because larger-cap companies tend to be slightly less economically sensitive.

And they tend to be more international. Economies outside of the United States are going to offer more growth than the U.S. economy.

So a larger-cap, growth-oriented strategy is I think extremely attractive because [their price-to-earnings ratios] are near all-time lows for many of these companies, and cash flows are great.

· Range of Opportunities: I see opportunity in a lot of different places. I wouldn't say any particular sector stands out.

I like the growth of international markets. I like emerging-market economic growth. So I do like companies that are exposed that way.

· Don't Expect the Fabulous: In general, I think growth is going to be reasonable around the world. I think inflation is going to be there, but not too extreme. I think rates are going to be flat for a while.

It's probably hard for us to have fabulous returns but I think we'll probably have really decent returns in the 5 to 15 percent range for the next two to three years [for the U.S. stock market as a whole]. For large-caps, I would say in the upper end of that.