NEW YORK (TheStreet) -- For much of the past decade, small-cap stocks have outperformed large caps. But that could be changing. During the past three months, small growth funds lost 17%, lagging large growth by six percentage points, according to Morningstar. Can large stocks continue outpeforming? Yes. Large stocks are cheaper than small ones. And big stocks tend to excel when markets face the kind of uncertainty that now plagues investors.With markets favoring companies that can grow in a harsh time, large growth funds have been standouts this year, outdoing large value by a percentage point. To benefit from a revival of large stocks, consider buying a top large-growth fund. Strong choices include Buffalo Growth ( BUFGX), TCW Select Equities ( TGCEX), and T. Rowe Price New America Growth ( PRWAX). In the first quarter, large stocks lagged as investors bet that shakier small stocks would benefit from an economy that seemed to be gaining momentum. Then in the spring, economic indicators turned sour. Worried that unemployment could surge again, investors sought safety in big blue chips. When small-cap funds turned down in May, large-cap funds lost less, and they have held their lead since then. >> Get your mutual funds news on the go with TheStreet's iPad app. Even after a period of outperformance, large caps look like relative bargains. The stocks of the Russell 1000 large-cap index sell for a price-earnings ratio of 14.8, while the Russell 2000 small-cap benchmark has a multiple of 18.1. In the past, small stocks have often sold for a minor premium, but the current 22% premium is unusual. In 1993, the Russell 2000 sold at a 10% premium. Then large stocks began to soar. By 2000, the small-cap benchmark was at a 40% discount. While they have relatively low multiples, large stocks have reported superior earnings gains as booming sales in emerging markets have boosted multinational giants. During the past five years, earnings of stocks in the Russell 1000 have been growing at an annual rate of 6.3%. In contrast, earnings of the Russell 2000 have climbed at a rate of 3.4%. Let's take a closer look at all three funds mentioned above.
A defensive holding is Mead Johnson Nutrition ( MJN), maker of Enfamil baby formula. The company has been expanding in China, Latin America and other emerging markets. "Consumers in emerging markets are willing to pay a big premium for high-quality Western brands," says Blum. A stock that can climb when the economy grows is Schlumberger ( SLB), the oilfield services giant. Blum says that as companies seek to obtain oil in hard-to-reach locations, the demand is growing for equipment and services. Schlumberger ranks as a superior competitor because it offers the technological advantages that major oil companies seek.