By Steve Gelsi, MarketWatch
NEW YORK (MarketWatch) -- The U.S. stock market heads into 2007 on sure footing with a possible return of the big-cap growth stocks in store for the year amid an overall soft landing in the economy, pundits at T. Rowe Price said Wednesday.
Larry Puglia, manager of the T. Rowe Price Blue Chip Growth Fund /zigman2/quotes/208533233/realtime TRBCX +1.31% said U.S. equities are inexpensive relative to bonds and that the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.06% is trading at a discount to historical valuations.
While value stocks have been outperforming growth stocks for years, he said the out-of-favor sector "could be an opportunity" in 2007.
Long-term themes favored at T. Rowe Price /zigman2/quotes/203200152/composite TROW -0.02% , which manages about $308 billion, include some tech investments, biotech firms, "globally dominant and acquisitive mega cap firm," financial asset managers and "world class" manufacturers, Puglia said.
Puglia praised Google /zigman2/quotes/205453964/composite GOOG +0.43% , Adobe /zigman2/quotes/200389143/composite ADBE -0.31% Apple /zigman2/quotes/202934861/composite AAPL +0.46% and Cisco /zigman2/quotes/209509471/composite CSCO -2.17% as well as Genentech , General Electric /zigman2/quotes/208495069/composite GE +1.29% .
He also eyed shares of Procter & Gamble /zigman2/quotes/202894679/composite PG -0.46% , State Street /zigman2/quotes/209758976/composite STT +1.17% , UBS /zigman2/quotes/206172872/composite UBS +0.84% , Danaher /zigman2/quotes/210555154/composite DHR -0.32% , Illinois Tool Works /zigman2/quotes/208031922/composite ITW +0.08% and General Dynamics /zigman2/quotes/208560027/composite GD +0.69% .
Alan Levenson, chief economist of T. Rowe Price, said the U.S. is in the midst of a soft landing that began in the middle of 2006.
Macro economic trends in the coming year include slower productivity, a tighter labor market, and increased caution by large companies to hire and invest in capital spending.
Unlike some on Wall Street who are hoping for an interest rate cut by the Federal Reserve, Levenson said the central bank could instead raise rates to keep the economy from overheating.
He said that while the housing correction still has a little further to go, but that consumer spending will not be greatly impacted by it.
Also appearing at the company's 2007 Investment and Economic Outlook were Kris Jenner, manager of T. Rowe Price Health Sciences Fund and vice presidents Raymond Mills and Mary Miller.