Can investing really be this easy? I've come up with a ten-stock portfolio that includes some of the best companies in the world -- stable, fast-growing, well managed. Over the past year to June 1, every stock has produced a positive return and, as a whole, the portfolio has handily beaten Standard & Poor's 500-stock index.

What's more, the group's valuation is relatively low. Half of the stocks carry a price-earnings ratio of 13 or lower. The highest P/E is 22, and the average is just 16 (the average for the S&P 500 is 18, based on the past 12 months' earnings). Liquidity is about as high as it gets (there are plenty of buyers and sellers at the ready). Each of the stocks pays a dividend, and the portfolio's overall yield is an attractive 2.8%, a full point higher than that of the S&P.

The biggest companies

Call it the Mega-Cap Portfolio. It's composed of the ten U.S. stocks with the largest market capitalizations (a company's market cap is its stock price multiplied by shares outstanding). In other words, these are the public companies that investors value most. On June 1, ExxonMobil ranked number one, with a cap of $474 billion, followed by General Electric and Microsoft. The market caps of the ten companies total $2.6 trillion. That's greater than the gross domestic product of Britain, France or China.

The other seven stocks, in order of capitalization, are Citigroup, AT&T, Bank of America, Procter & Gamble, Pfizer, American International Group and Johnson & Johnson (see the table on page 28). It's a remarkably diverse portfolio that's slightly overweighted in financials and health care but includes representatives from most of the key sectors of the global economy: industrials, consumer products, energy and information technology. Retailing is the only big absentee.

Today's mega-caps are very different from those of just six and a half years ago, when the tech bubble was about to burst. In a Wall Street Journal article on March 14, 2000, Jeremy Siegel, a Kiplinger's columnist and a professor at the Wharton School, cited 33 stocks with market caps greater than $85 billion. Eighteen were high-tech companies, "an incredible nine currently have P/Es in excess of 100, and six of those are in the top 20."

I examined the 33 largest-cap stocks in the S&P 500 this year (the cutoff point was also right around $85 billion), and I found that only nine were tech companies -- 11 if you count telecoms AT&T and Verizon. As for P/Es, none was over 100, and just five were over 25. Only drug company Abbott Laboratories had a P/E higher than 50, and the reason was anomalously low earnings over the past year. Abbott's forward P/E, based on expected profits for the year ahead, is just 17.

The only companies that bear even a slight resemblance to the overblown large-caps of 1999 are two that I like a great deal but that don't make the cut for the Mega-Cap Portfolio: Google (symbol GOOG), with a P/E of 45, and Apple (AAPL), at 39. But Google's earnings are growing so fast that its PEG ratio (P/E divided by rate of earnings growth) is just 1.1 -- 1.0 is usually considered a raging bargain -- and its P/E is only 27, based on profit forecasts for 2008. Apple's PEG ratio is a modest 1.5, and its forward P/E is 30.

Compare Google, which has a market cap of $161 billion, with the high-tech mega-cap darlings of March 2000. Back then, Cisco Systems, which was earning less than Google is today, had a market cap of $452 billion and a P/E of 148. Cisco's cap has dropped by nearly two-thirds, and today its P/E is 24. Time Warner has also lost about two-thirds of its capitalization in seven years. The cap of Sun Microsystems has dropped from $149 billion to $18 billion, and Oracle's has fallen by half.

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