(FORTUNE Magazine) – Want some tips from an investing heavyweight? Pull up a chair next to Fayez Sarofim, the Houston investor whose firm manages $26 billion and is the largest shareholder in such major-league stocks as Merck, Philip Morris, and PepsiCo. Though one of the country's most influential investors, Sarofim, 63, adheres to basic principles. ''Successful investing is the result of judgment and discipline,'' he says. ''It's a simple business if you don't get carried * away.'' That's easy for him to say. The Egyptian-born Harvard MBA has beaten Standard & Poor's 500-stock index over the past five years, three years, and last year too, according to CDA Investment Technologies. A minimum account size of about $1 million has placed Sarofim's expertise out of reach to all but the well-heeled, until recently. For 14 months he has also been managing the $89 million Dreyfus Appreciation Fund. Last year the fund was up a hearty 38.5%. In a rare interview, Sarofim tells Fortune's Andrew Serwer where he's placing his big bets now.

How do you find winners? We are conservative, long-term investors. I always think that most investors' time horizons are too short. If I have to choose between an exciting biotech stock with excellent 12-month prospects or a boring consumer product company with steady 15% earnings growth, I'll take the latter every time. We are really a low-tech operation -- we like to own what we understand. For instance, if you walk in a supermarket you see many of our companies' products right there on the shelves. Many of these products sell for less than $10.

Aren't consumer product stocks too expensive these days? That's the short-term view. We look at the earnings of these stocks out to the year 2000, and on that basis they look just fine. Sure, the cyclical industrial stocks may do better for a quarter or two, but they simply don't have the reliability of earnings my stocks do. Once you have a consumer franchise, it's very difficult to screw itup. That's why these stocks will continue to be top performers. In addition to being the largest shareholder of Philip Morris, Merck, and PepsiCo, we are No. 2 or 3 in General Electric, and we are No. 2 in Coca-Cola after Warren Buffett.

But GE isn't really a consumer stock. True, but it is a high-quality, blue-chip growth stock, which is really quite amazing given that it is an industrial company. The capabilities of its CEO, Jack Welch, are well known. He makes this company show earnings growth of over 10% per year.

Philip Morris has made you a pile of money over the years. Is it still a good buy? We have owned it for 30 years. Now we have over 32 million shares. The company's biggest problem is how to deploy its cash. It generates more free cash than any other company in the world. Five years ago management said it would accumulate $8 billion in free cash flow over five years. Now they are talking about $21 billion over the next five years. The company has very wisely made acquisitions, reduced debt, and repurchased stock. Today the stock sells for $75 a share. Is it expensive? We think it could earn $20 a share in the year 2000. If it just maintains its current price/earnings multiple of 14, the stock would sell for around $280 in eight years. It's the same thing with our second-largest holding, Coke. It sells for $79, or 33 times trailing earnings per share. But we think it will earn $11 in the year 2000. By then, the stock should sell for at least $240 per share, which would be three times your money in eight years, not including dividends.

What about drug stocks? We own most of the big ones. The pharmaceuticals business is technology with a patent. That's why I own them and not the computer stocks. Those technology stocks have to keep running faster to stay in the same place.

Aren't you worried about the government clamping down on drug company profits? No. I think the companies are becoming sensitive to that problem and can deal with it themselves. The enlightened ones, such as Merck, say they won't raise prices more than the CPI. That loss can be counterbalanced with new products. For instance, Merck's new Proscar could be a billion-dollar-a-year drug. It treats benign prostate enlargement, which afflicts more than half of all men over 60 years old. We also like Pfizer, American Home Products, Abbott Laboratories, and Bristol-Myers Squibb.

Do you have an appetite for food stocks? Yes, we own several. Besides Pepsi, we own Kellogg, where earnings have continued to climb at a double-digit clip.

CHART: NOT AVAILABLE CREDIT: PAUL GRANGE FOR FORTUNE CAPTION: PHILIP MORRIS