Blue-chip growth companies have returned only three-quarters as much as the S&P 500 this year and even less of the Dow's gains. And they're still at least 20% below their normal valuations, as measured by their price-to-earnings ratios.

Growth stocks are particularly sensitive to inflation and interest rates. And as long as those were rising, investors preferred the kinds of stocks found in the Dow - defensive stocks with significant dividend yields, and stocks that do really well in boom times, like those in energy and heavy industry. But now growth shares have the best prospects, since it looks as though inflation is abating and interest rates will be stable, if not falling.

That's good news for the Vanguard Growth Index fund (VIGRX) fund, which tracks a broadly diversified portfolio of big growth stocks. Another option: the iShares S&P 500 Growth Index (IVW) ETF.

Buy the former if you invest a little each month. The ETF, which trades like a stock, is cheaper if you buy in large dollar amounts infrequently.

On the other hand, if you prefer to invest with a manager who picks stocks, the T. Rowe Price Blue-Chip Growth (TRBCX) fund, a Money 65 entry, is attractive.


For stock investors, here's a look at three choices that seem especially timely.

General Electric GE (GE) is the conservative pick. Since he became CEO in 2001, Jeff Immelt has been trying to get GE's growth back to its historical 15% level. Last quarter, four of GE's businesses turned in double-digit growth, and one, financial services, was up modestly. The sole remaining problem is NBC Universal, which suffered a 10% earnings decline. GE has pledged to cut costs there over the next year or so.

Schlumberger With oil prices coming down, you might think that the energy sector offers few opportunities. One exception, though, is Schlumberger (SLB), the largest, most technologically advanced oil services company. Long-term demand for oil will keep growing, and that means continuing exploration worldwide.

Texas Instruments TI (TXN), the leading maker of semiconductors for cell phones and other consumer electronics, can enjoy periods of exceptionally high earnings growth. In the near term, growth may be below average, but that has made the stock price a compelling value. Buy this stock now and you could lock in terrific long-term growth while the chips are down.
- By Michael Sivy, Money Magazine editor at large