Large-cap stocks are back in vogue, or so it seems.

After producing inferior profit growth for three straight quarters, large-caps outperformed their smaller cousins in the first three months of the year, with year-over-year earnings growth of 13.1% compared with 11.4% for small-cap firms, according to Thomson First Call. Those numbers include actual results for firms that have reported and estimates for the rest.

Large-cap stocks also have risen at a slightly faster pace this year compared with small-cap stocks, with the S&P 500 up 5.8% on the year compared with just 4.5% for the S&P 600. Although the difference might seem slight, it is noteworthy considering that the S&P 500 has consistently underperformed its small-cap counterpart over the last three years.

"Valuations on some of the big- and mega-cap companies have come down much more than the overall market," said John Waterman, managing director of investments at Rittenhouse Financial, a large-cap growth fund.

This multiple compression, along with a big slide in the dollar, has helped large-caps put in a better performance this year, analysts said. A weaker dollar helps large firms, because they tend to do more business overseas and benefit from more favorable currency exchange rates. "Earnings in areas that have held up -- like pharmaceuticals -- are still pretty good, and earnings in areas that fell off a cliff -- like technology -- appear to have bottomed and are starting to improve," Waterman said.

The strength of large-cap stocks in 2003 has enabled large-cap mutual funds to produce returns of 4.5% so far, while small-cap funds have recorded a gain of just 3.4%, according to Lipper. In both cases, growth beat value.

"As of Jan. 1 this year, there was a rotation from small-cap value into large-cap value," noted Bob Rowe, managing partner at Rowpyn Investment Partners. "We're entering a period of large-cap dominance over the next 12 to 24 months."

If you liked this article you might like

Coming Week: Earnings Flood

Coming Week: Earnings Flood

Don't Write Off Inflation Threat

Don't Write Off Inflation Threat

No Quick Fix for Trade Gap

No Quick Fix for Trade Gap

Merrill's Doll Sees Stocks 'Muddling Through'

Merrill's Doll Sees Stocks 'Muddling Through'

Downhill From Profit Peak

Downhill From Profit Peak