The bigger, the better.

Peggy Woodford Forbes favors large-cap lions

Like most large-cap money managers, Peggy Woodford Forbes, founder and chairwoman of Woodford Capital Management in Los Altos, California, believes in buying companies with growing earnings and growing revenues. She takes a disciplined approach when screening for stocks with a capitalization of $2 billion or more.

Forbes not only discusses "stocks she likes" for this Private Screening, but her overall outlook for the stock market. "I think the market will broaden out; t think that by the first half of the year, we might see rates 75 to 100 basis points lower."

A Fed drop in rates should bode well for such cyclical stocks as Morgan Stanley Dean Witter (NYSE: MWD) and Merrill Lynch (NYSE: MER), two stocks that Forbes favors. Cyclical stocks' performance depends heavily on specific economic conditions. In this case, Morgan Stanley and Merrill's performances bank on low interest rates because their core businesses are investment banking.

She likes Merrill Lynch, the New York-based brokerage that finds itself fighting for the top spot with Morgan Stanley. Its interests include retail brokerage, life insurance, and asset management. About a third of its revenues are generated outside the U.S.

Pfizer (NYSE: PFE), the pharmaceutical giant, had revenue growth of 31% in 2000, long-term earnings growth of about 23%, and a forward P/E of about 35 times earnings. "[It's] a strong company in the healthcare sector," says Forbes. Pfizer merged with former rival Warner-Lambert last year.

Applied Biosystems Group (NYSE: ABI), formerly PE Corp., makes technology that allows researchers to do some fantastic things in the life sciences. "It's akin to a new intellectual revolution; it's really changing the face of medicine," says Forbes, referring to genomics, the study of the genetic material of an organism that Applied's technology makes possible.

Forbes' last two stocks, El Paso Energy (NYSE: EPG) and Oracle (Nasdaq: ORCL), both contribute to infrastructure systems. Based in Houston, El Paso gathers, transports, and processes natural gas. "It's a fast-growing, highly profitable situation with 15% earnings growth," says Forbes. El Paso has interests in more than 40,000 miles of pipeline in the Midwest, Northeast, Gulf Coast, and other regions.

Oracle is the leading developer of management systems software. Based in Redwood City, California, Oracle is on the cutting edge of infrastructure building in database software, Forbes thinks. "With a forward P/E of about 46 times earnings, they are a little rich but a very strong supplier of information management."

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