Iconoclast Builds Portfolio Around Blue Chips Crowd Heads For Small-Caps, But He Likes Merrill Lynch, Amr, Marriott, Cisco

Louis Navellier has never been one to follow the crowd.

While most Wall Street watchers tend to hang their shingle near the center of the action, Navellier prefers the seclusion of an office in downtown Reno.

He spends his weekends picking stocks he recommends in MPT Review, which he says has racked up gains of more than 2,000 percent since 1985 and gets high marks from the Hulbert Financial Digest.

MPT - or Modern Portfolio Theory - has literally hundreds of stocks in its model portfolios, making it difficult for the average individual investor to analyze.

Navellier has just brought out his more user-friendly Blue Chip Growth Letter.

With much of the market talk focusing on future prospects for the small-cap stocks, it’s interesting that Navellier would take the opposite approach, zeroing in on what he hopes will be big-cap, big performing stocks.

Navellier says conditions are perfect for stock pickers. He contrasts the severe panic that hit the market in 1987, in which nearly all stocks collapsed, to what he sees as a rotational correction in which one industry group after another is subjected to profit taking but the overall market doesn’t collapse.

His reasoning is simple: There is still too much money going into the market. “In July alone, more than $23 billion in new mutual fund assets poured into the stock market,” he notes.

In his coverage of blue chips, Navellier says his goal will be to prove that he can beat the S&P 500 index using big-cap stocks, which over the years has been the ultimate benchmark for the market.

Here are his top four picks and what he has to say about them, with their Friday closing price:

Merrill Lynch. $64.50. America’s leading brokerage is Navellier’s top pick among all the blue chips. “Mother Merrill,” as he calls the company, has a highly disciplined, almost military work ethic directed by exceptional management.

They have tremendous client loyalty, but rather than rely on commission-based revenue, Merrill has broadened its services to provide credit lines, investment management and insurance services. He has a target price of $90 a share by March 31.

AMR Corp. $114.62. The parent company of American Airlines should benefit from the recent upswing in the economy. Operating margins have been expanding, and sales are at a record high. With seats full, price wars have been reduced.

Marriott International $67.44. If you’re out there traveling, chances are you’ll be staying at a Marriott facility. It operates under such familiar names as Marriott Hotels, Resorts and Suites, Courtyard, Residence Inn, and Fairfield Inn. Earnings have grown at an average rate of 18 percent over the past five years.

Cisco Systems. $72.25. Cisco makes high-performance Internet working systems essential to the smooth working of the Internet. Sales have grown from $69 million in 1990 to almost $6 billion this year and earnings growth has averaged more than 100 percent annually since 1990.