(MONEY Magazine) – Mutual fund investors frequently ask me when it makes sense to buy individual stocks instead of additional fund shares. As a rule, I think you should favor funds if you have less than $10,000 to invest; you simply can't diversify stockholdings enough. Once you've accumulated more money, though, you might consider individual stocks, which will likely boost your overall profits for these reasons:

1. Lower costs. Most actively managed stock funds charge at least 1% in annual expenses. If you hold stocks directly, your buy and sell commissions will total 2% to 3%--or less than a fund's expenses over three years.

2. Tax savings. Mutual funds distribute their realized capital gains every year. By contrast, individual stocks generate no taxable gains until you sell (though dividend income is taxable in the year you collect it). If you hold a stock for 10 years, the gains tax deferral can add 30% to your after-tax return.

3. Focused profit opportunities. A fund's broad diversification isn't always a blessing. Once you have a solid mix of funds, there's a good argument for selecting specific stocks that provide the best chances for extra gains.

Here's a quick rundown of four such companies that analysts currently recommend. The stocks, all listed on the New York Stock Exchange, are discussed in order of projected total returns--price appreciation plus dividends--over 18 months.

--Alcoa (ticker symbol: AA; recently traded at $73.75; 1.3% yield). Shares of the world's largest aluminum producer, with estimated 1997 revenues of $14.3 billion, may look pricey, trading at 26 times the past 12 months' earnings. But the Pittsburgh company's stock is cheap based on its prospects. "Because of strong demand, the aluminum industry is in the early stage of an earnings upturn," says Oppenheimer analyst Thomas M. McNamara in New York City. He expects Alcoa's profits to soar nearly 80% to $6.60 a share this year, giving the shares a bargain 11.2 price/earnings ratio. McNamara sees Alcoa stock topping $95, for a 31% total return.

--Cox Communications (COX; $22; no dividend). After lagging the overall market for more than three years, cable-television stocks are finally perking up. And analysts say one of the biggest winners could be Atlanta's $1.7 billion Cox Communications. "It's the class act of the cable industry, known for strong management and good customer relations," says analyst Tom Wolzien at Sanford C. Bernstein in New York City. "The real excitement is yet to come as the company launches new television and telephone services," adds analyst Douglas Shapiro at Deutsche Morgan Grenfell in New York City. He believes the stock will gain 18% to $26.

--Dial Corp. (DL; $16.75; 1.9%). Procter & Gamble's April offer to buy Tambrands for nearly $2 billion has sent investors scurrying for other consumer-products takeover targets. Prudential Securities analyst Heather Hay recommends Dial, the $1.3 billion maker of Dial soap and Purex detergent. Dial stock is now 20% cheaper than the shares of its major competitors, says Montgomery Securities analyst Carol F. Warner in New York City. She figures Dial could rise to $19 for a 16% return. Based on past acquisition prices, Hay thinks that if Dial is taken over, it could go for $23 a share.

--Teco Energy (TE; $24.75; 4.7%). Over three years or more, top-quality electric utilities' average annual returns beat those of low-quality producers by as much as three percentage points, according to analyst Linda C. Byus at Nesbitt Burns Securities in Chicago. She likes Teco because of strong sales growth in both its electric power and nonregulated businesses, which she projects will lift earnings about 5% a year. Byus expects the shares to rise 9% to $27, providing investors with a 16% total return.

Wall Street editor Michael Sivy is a chartered financial analyst and a former Wall Street research director.

ALL DATA AS OF JUNE 2