Focus: Large Cap Stocks


Large-cap stocks are probably already in your portfolio if you’re like most investors. Companies with large market capitalizations, which indicate their high market value, hold these stocks. Because they are larger than mid-cap and small-cap stocks, large-cap stocks get their name.

What exactly is a big-cap stock?
Any publicly traded company’s stock with a market value of more than $10 billion qualifies as a large-cap stock. Large-cap stocks, also known as “big-cap stocks,” are frequently regarded as the “blue chips” of the stock market. Consider businesses like Walt Disney (NYSE: Coca-Cola (NYSE: DIS), General Motors (NYSE: GM) and GM) are established giants that hold leading positions in their respective sectors.

Amazon, for example, is one of the largest large-cap companies (NASDAQ: JPMorgan Chase (NYSE: JPM) and Amazon JPMorgan) and others with market capitalizations exceeding $200 billion also belong to the large-cap category. Although they are commonly referred to as “jumbo” large-cap stocks, some investors view them as a distinct class of stocks known as mega-caps.

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Source: Getty Images Large-cap stocks can be very profitable opportunities for investors who take the time to understand them, despite the fact that many investors consider smaller, fast-growing businesses to be more exciting. Additionally, these enormous businesses can help diversify a portfolio of smaller stocks while still providing good share price growth over time due to their tendency to be less volatile than their smaller counterparts. Their chief benefit is that they are a more secure venture since they are more settled than more modest organizations and have more dependable benefit streams. Consequently, during a bear market, large-cap stocks typically outperform small-cap stocks.

There are some large-cap growth stocks available, typically stocks like Meta Platforms, the parent company of Facebook (NASDAQ: FB) or Nvidia, a chipmaker (NASDAQ: NVDA). A growth stock can be defined in a variety of ways, but in general, any business that sees an increase in revenue of 20% or more qualifies.

Growth stocks with a large market cap are the exception. Most of the time, mature businesses with moderate growth prospects make up large-cap stocks. Smaller businesses at the lower end of the market cap range may be preferable investments for investors seeking high growth potential.

CATEGORY MARKET CAPITALIZATION Micro-cap companies with a market capitalization of less than $300 million Small-cap companies with a market capitalization of $300 million to $2 billion Mid-cap companies with a market capitalization of $2 billion to $10 billion Large-cap companies with a market capitalization of $10 billion to $200 billion Mega-cap companies with a market capitalization of more than $200 billion Many are well-known, though not all are household names. Stable businesses with well-respected management teams, solid credit ratings, and long histories of profit are known as large-cap blue chips. Others, usually industrial giants, have business cycles that are cyclical, which means that their profits and stock prices tend to move with the economy as a whole. Large-cap stocks have outperformed their smaller counterparts over the past decade. Some large-cap businesses are growing quickly and may have been in the mid- or small-cap range just a few years ago. They have also done so with less volatility because when the COVID-19 pandemic struck in March 2020, the S&P 500 fell less than the Russell 2000.

Top large-cap stocks The following large-cap stocks are worth considering:

Starbucks, Inc. Since its initial public offering (IPO) in 1992, SBUX) has historically outperformed the market as a whole. It appears likely that it will continue to expand its market share as it recovers from the pandemic. Starbucks is a good illustration of a large-cap stock that offers stable profit streams in addition to growth opportunities in China, digital, and delivery. The well-known brand, well-liked reward programs, and technological initiatives like Mobile Order & Pay give the company a significant advantage over its rivals.

A pandemic lockdown in China, a push for unionization, and a tight labor market in the United States are just a few of the obstacles that Starbucks has had to overcome in the past, and it should continue to do so in the future.

The company began paying dividends in 2010 and has increased them annually ever since, making it a potential dividend aristocrat in the future.
NASDAQ: MercadoLibre MELI, the largest e-commerce site in Latin America, is an excellent illustration of a large-cap business that is still expanding rapidly. With its leading e-commerce business and shipping network in MercadoEnvios, MercadoLibre shares a number of similarities with Amazon. However, it also offers unique solutions for Latin America, such as point-of-sale machines for physical stores.

That is one component of the company’s MercadoPago payment tool, which is expanding rapidly. Originally a PayPal-like service (NASDAQ: PYPL) is used to make payments at gas stations and grocery stores in Latin America by MercadoLibre customers. It has developed into something of a multinational bank.
Walmart, Inc. WMT) is the largest company by revenue and the largest retailer worldwide. It has stores within 10 miles of 90% of the population in the United States, a reputation for low prices, and economies of scale that work in its favor. It also has many competitive advantages.

However, Walmart’s transformation into more than just a retailer is what distinguishes it from other Dividend Aristocrats. By adding health clinics, the company is utilizing its physical presence to enter sectors like healthcare. It also acquired two Goldman Sachs (NYSE:) and launched a fintech startup at the beginning of 2021. executives from GS) to lead it. The company owns a valuable stake in a market that is expanding rapidly thanks to its formidable e-commerce business, which ranks second in the United States behind Amazon. In five or ten years, Walmart could be very different because of the company’s obvious evolution.

Walmart is well-prepared to endure a recession or economic downturn due to its low prices.
Best large-cap funds You can still gain portfolio exposure to the biggest companies by investing in an exchange-traded fund (ETF), a mutual fund that focuses on large-cap stocks, or even large-cap growth funds if you don’t want to choose individual large-cap stocks.

Consider the following two large-cap-focused funds:

NYSEMKT: Vanguard S&P 500 ETF An exchange-traded fund called VOO) tracks the S&P 500’s performance. Vanguard during the 1980s concocted the record store, and the assets that track the S&P 500 are as yet the most famous. The fund is basically fee-free with an expense ratio of just 0.03%, making it a great choice for new investors or people who prefer to invest in large-cap stocks passively.
Contrafund Fidelity (NASDAQMUTFUND: FCNTX) is a mutual fund that focuses on investing in large-cap and mega-cap stocks with appealing long-term earnings growth potential. It is much more expensive than the typical index fund, with an expense ratio of 0.86 percent, but the fund is actively managed, which means that its manager hopes to outperform the S&P 500. In theory, the outperformance more than makes up for the higher fees. For the past five years, the total return of the Fidelity Contrafund has been higher than that of the S&P 500.
How to assess the best large-cap stocks There are many different kinds. Some, like MercadoLibre, were once small-cap growth stocks that just kept growing; some, like Starbucks, are long-lasting players in businesses that are hard to enter at scale; and others, like Walmart, are adaptable giants that have a long history of solid management and steady growth.

A strong brand, demonstrated leadership, and a track record of rewarding investors through dividends, share repurchase programs, or simply long-term share price growth are all characteristics that can be found in almost any top large-cap company.

Why you should buy large-cap stocks: If you can keep an investment for at least five years and want stocks with low volatility, large-cap stocks might be a good choice. Add a few stable large-cap stocks to your portfolio to diversify your holdings without significantly sacrificing growth potential if your portfolio is dominated by volatile growth stocks.

Even though large-cap stocks typically belong to businesses that “everybody knows,” it is still essential to conduct research before making a purchase. You can also add an ETF or mutual fund with a focus on large companies to your portfolio.