It doesn t seem to make sense. When the markets were surging last year, the best stock performers were struggling companies that exceeded Wall Street s low expectations for them the investing equivalent of buying a bunch of rotten apples just because they didn t have any worms. Ironically enough, that means IBM, Johnson & Johnson and other traditional stalwarts lagged behind, missing out on part of the sharpest rally since the Great Depression.

But a group of savvy pros are betting that some of these big names might finally be ready to shine. And these pros just might be onto the beginning of a trend. For the first time since last spring, the Dow Jones Industrial Average has been outperforming the Russell 2000, an index of smaller, riskier companies. Some analysts say investors will shift their attention to strong, stable companies, particularly when events like Dubai s and Greece s debt scares remind them that the market s rally can come to a quick halt. Before, investors bought just about any type of growth story. Now companies have to put up or shut up, says Tom Forester, manager of the $102 million Forester Value fund, who has been adding Pfizer, Microsoft and other stable companies to his fund.

Unusual as it might sound, Wall Street often rewards mediocre firms over top-notch ones at the beginning of an economic recovery. After all, it s those nearly ruined companies that had their market value punished the most. Any sign of improvement, whether it was from cost-cutting or restructuring, was greeted with cheers from investors. But as a consensus builds that this economic recovery probably won t be a smooth one (high unemployment, for one reason), these back-from-the-brink firms might have trouble doing more than just surviving, some analysts contend. Brian Bythrow, who runs the $163 million Wasatch Micro Cap Value fund, wants to own companies that can do well even if the economy doesn t come roaring back. That has made him hunt for companies with strong brands and growing sales. Plus, the marquee names are on sale, Forester adds.

Investors are using a variety of methods to find the juiciest stocks. Bythrow is looking for increases in licensing revenue from technology firms, a metric which can indicate that a company is increasing its sales without spending a lot. Some money managers are using ratios such as return on equity or return on capital. Joel Greenblatt, strategist at Formula Investing and founder of investment firm Gotham Capital, favors companies with a high return on capital ratio because, he says, it indicates they have reinvested their money wisely to generate big future returns. Others look for companies that have rising returns on equity, which can show that firms are making better use of their resources. Both measures have been under pressure during the downturn, but managers want to see firms with improving trends.

To be sure, many of these top-notch companies, like IBM, are known commodities. But the best strategy may be not going for gusto, says Jason DeSena Trennert, chief investment strategist at Strategas Research Partners.

These firms likely won t replicate the fantastic returns of riskier stocks. But in the event of a market or economic pullback, these stocks are less likely to crater.

Our Picks

When the market starts rewarding higher quality companies, these firms could shine, according to some pros.

Pfizer
Market value: $151 billion

Any health care reform likely will increase Pfizer s pool of customers, says Amana Mutual Funds Trust manager Nick Kaiser. The company s return on equity is 12 percent, up from 11 percent at the beginning of 2008, and some analysts expect it to rise further.

IBM
Market value: $171 billion

While total corporate spending is down, companies are still paying for services that help them cut costs. Big Blue has been a company other firms hire to help boost their productivity. IBM has become more efficient too, improving its already robust return on equity from 25 to 57 percent over the past four years.

First Cash Financial Services
Market value: $708 million

Pawnshops are seeing a growth spurt thanks to newly thrifty Americans sifting through the shops. The firm, which runs 320 shops nationwide, should start improving its profitability after writing off an ill-fated move into an auto-related business, says Brian Bythrow, who runs the $131 million Wasatch Micro Cap Value fund.

JPMorgan Chase
Market value: $171 billion

While JPMorgan s stock has returned to near its precrisis levels, some value managers see a chance for it to go even higher. After snapping up Washington Mutual and Bear Stearns on the cheap, the company is much stronger than many of its battered banking peers, says Tom Villalta, comanager of the Jones Villalta Opportunity fund. He expects the company s return on equity to rise over the next few years.

Telvent
Market Value: $1 billion

The Spanish company specializes in technology focused on smart grids and other environmental projects and stands to benefit as stimulus money starts flowing in this year. But in the meantime, it has growing businesses in Brazil and China and is helping cash-strapped U.S. state governments automate tollbooths. Analysts, on average, expect Telvent s sales to grow almost 10 percent in 2010 to $1.3 billion.

Data: Bloomberg