WASHINGTON (Reuters) — Psst ... Don’t look now, but it looks like the long-heralded rally in growth stocks may finally be upon us.The Russell 1000 growth index, which tracks the biggest of these companies, rose 9.68 percent in the three months ended October 31; the corresponding index of large value companies was up 7.09 percent.

That might be the first sign of a long run. Since 2000 (remember the tech stock bust?) value stocks have been outperforming growth companies.

In the last five years, the Russell 1000 growth index has gone up an average of 5.76 percent annually; large value stocks as measured by the Russell 1000 value index, with 11.14 percent average annual returns, have almost doubled that.

There are reasons for this.

In 2000, investors learned that there should be some connection between what they pay for a stock and what it is inherently worth.

Measures such as book value and price/earnings ratio, the watchwords of value stocks, became popular.

At around the same time, Congress changed tax laws to make dividends as tax-favoured as capital gains.

Value investments, which are more likely to pay dividends, took off, providing a sense of security — and more growth than growth stocks.

But that’s been the case for so long that some value stocks are now pricey and some growth stocks are cheap.

That’s weird. It’s also a signal that it might be time to invest judiciously in fast-growing big boys.

The pros think so: an Oppenheimer Funds survey of some 203 financial advisers last month showed they thought growth stocks, along with global stocks, had the brightest outlook for 2007.

But take a moment to really focus on that word “judicious” in the previous paragraph.

Growth stocks can take off in a hurry and fall back to earth equally fast.

It’s good to be a little bit careful if you’re loading up on companies you think will zoom you to profits in 2007. Here’s how:

— Make small shifts, not big ones. Keep your portfolio safe by keeping it diversified.

If you want to move some money from value stocks and mutual funds to growth stocks and funds, just shift some of your holdings, so that both sides are still represented and other parts of your portfolio — bonds and international stocks, for instance — remain intact.

You might, for example, go from 40 percent value, 20 percent growth to 30/30 or even 25 percent value, 35 percent growth.

— Use mutual funds or ETFs. One of the quickest, cleanest and cheapest ways to get exposure in this category is to buy an exchange-traded fund that uses a growth index.

The iShares Russell 1000 Growth Index (IWF) has a low 0.2 percent annual expense ratio and would provide an immediate presence in that part of the market.

— Learn the earmarks of a good growth company if you want to pick your own stocks.

Reuters screens for good growth stocks this way: It looks for companies with accelerating earnings growth of at least 15 percent annually over three years, sales that are increasing faster than the competition’s, raised earnings estimates from Wall Street, and rising stock prices.

— But beware that “momentum” measurement. Whenever a stock looks good because other investors are bidding up its price, you have to be careful not to stick around too long.

Those who are in early sell to those who come in late. You want to be early in and early out, lest momentum shifts while you’re holding the bag.

— Don’t forget your value measurements, and consider the companies’ own stories. Not all growth companies will go gangbusters.

Many economists expect slow growth next year. The Democrats’ win could favour some industries over others, so not all growth companies will go up uniformly — or even at all.

Once you’ve found a company that you think is a good grower, decide on a price that you think is good, relative to its earnings and its outlook.

Buy when the price is right and sell when it starts looking wrong. The last time growth companies won, we learned that even the sky has its limits.Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern[AT]aol.com.