If you are like most investors, you may already be a shareholder in large-cap firms. These stocks are owned by firms with large market capitalizations. They indicate their high market worth. The stocks with large capitalizations are more valuable than those of small-cap or medium-cap equities. This is why they are called Large Cap Stocks.
What is the definition and purpose of large-cap stocks?
A large-cap stock refers to any publicly listed corporation that has a greater than $10 million market capitalization. Large-cap equities (also known as big-cap stock) are often considered the market’s stalwarts, or blue chips. You can think of firms such as Walt Disney (NYSE.DIS), Coca-Cola and General Motors. They are industry leaders with dominant market positions.
Large-cap corporations, with market capitalizations exceeding $200 billion, like Amazon (NASDAQ:AMZN), and JPMorgan Chase(NYSE:JPM) also qualify for the large cap category. These investors may consider them to be a special class of equities called mega-caps. But, they are mostly “giant” largecaps.
Large-cap stocks could be extremely rewarding for investors who take time to understand them. However many investors find smaller and faster-growing companies more fascinating. These large corporations tend to be more volatile than their smaller counterparts. This can make them a good way to diversify an investment portfolio while still contributing to long term share price growth. The primary advantage is that larger corporations are safer investments because they have more predictable earnings streams and are more established. Therefore, large-cap equity often outperforms small-cap companies in weak markets.
There are many large growth companies available. These include Meta Platforms, Facebook’s parent, or Nvidia (NASDAQ.NVDA), the chipmaker. While there is not a specific definition of growth stock, it can be defined as any company that has seen its revenue increase by at least 20%.
Large-cap, growth stocks are the exception. Stocks with large capital are usually issued by established companies that have a low growth potential. Investors who are looking for substantial growth potential might prefer smaller firms at lower market capitalizations.
Large-cap corporations often have a long history and are more reliable in paying dividends. Some are well-known and some are not household names. Large-cap blue-chip companies are stable with well-respected management and solid credit ratings. They also have excellent earnings records. Others, such as industrial behemoths or large corporations, have cyclical business patterns that mean their stock and earnings values change with the economy. A few years ago, large-cap businesses might have been considered small-cap or medium-cap because of their rapid growth.
Over the last decade, large-cap equities have performed better than their smaller-cap counterparts. When the COVID-19 pandemic erupted in March 2020, the S&P 500 fell less that the Russell 2000.
Three of the best large-cap stock options for 2023
The following stocks are outstanding large-cap stocks to consider:
1. Starbucks (NASDAQ.SBUX).
Starbucks has outperformed all other companies since its initial public listing (IPO) in 1992. It is now ready to continue gaining market share after the outbreak. Starbucks is an example a large-cap business that has growth potential, including in China, digital, delivery, and stable earnings streams. Starbucks has many competitive benefits, including its well-known brand, popular loyalty program, and digital efforts like Mobile Order & Pay.
Starbucks has been faced with obstacles including a China pandemic lockdown and unionization campaign. However, Starbucks has survived adversity in its past and should be capable of overcoming them again.
The company started paying dividends in 2010, and it has increased them every year since. It is now considered a possible future Dividend Aristocrat.
2. MercadoLibre (NASDAQ:MELI)
MercadoLibre, Latin America’s largest ecommerce site, is a great example of a large-cap business that is expanding quickly. MercadoLibre resembles Amazon in many ways, including its top ecommerce company and shipping network MercadoEnvios. However it also provides unique solutions to Latin America, such point-of sale equipment for bricks-and-mortar merchants.
This feature is also available on MercadoPago. It started out as a service similar to PayPal (NASDAQ.PYPL) and was used by MercadoLibre clients to make payments to grocery stores and petrol stations.
3. Walmart (NYSE:WMT)
Walmart is both the largest retailer and largest revenue-generating firm in the world. It enjoys many competitive advantages, such as economies-of-scale, reputation for low pricing, and shops located within 10 mile of 90 percent U.S. residents.
Walmart’s expansion beyond retail is what makes it more than just a long-standing Dividend Aristocrat. It has opened health clinics and is using its physical presence in healthcare to reach new markets. It also launched a fintech venture in the early 2021. Two executives from Goldman Sachs NYSE GS were hired to oversee it. The company’s ecommerce presence is second to Amazon in the United States. It also has a substantial share in a fast-growing sector. Walmart may become a completely different organization in five to ten decades, thanks to its apparent evolution. Walmart’s low pricing makes it well-equipped to handle a recession.
Top large-cap mutual money for 2023:
If you don’t want to select large-cap stock stocks, you could still have portfolio exposure by investing in large cap-focused ETFs or mutual funds. You can also invest in large-cap growth or large capital-focused ETFs.
These large-cap mutual funds are worth looking at:
1. Vanguard S&P500 (NYSEMKT.VOO).
Vanguard S&P 500ETF is an ETF that trades on the exchange. It reflects the performance S&P 500. Vanguard introduced the index fund concept in the 1980s. Index funds that are based on the S&P 500 have remained the most popular. The fund offers an excellent alternative for those looking to start investing or who prefer a passive way of investing in large-cap companies.
2. Fidelity Contrafund (NASDAQMUTFUND:FCNTX)
Fidelity Contrafund invests mainly in large- and micro-cap equities with a focus on large-cap firms with strong long-term earnings growth prospects. The fund has a cost ratio of 0.86% that is higher than a regular index fund. However, its manager strives for greater returns than the S&P 500. Although the costs are higher, the outperformance should cover them. Fidelity Contrafund beat the S&P 500 five years ago in terms of total return.
How to determine the leading stocks of large capital
There are many great large-cap stocks. There are many outstanding large cap stocks. Some, like MercadoLibre were once small-cap growth shares that have kept growing. Other, such Starbucks are established players in industry sectors that are difficult to access on a large scale. While others, such Walmart, are flexible giants with a long record of consistent growth and strong management, others, such MercadoLibre and Starbucks, are also ex-small caps.
A majority of large-cap firms have observable competitive benefits, a strong brand and established management. They also have a track record for rewarding shareholders via share buybacks, dividends or simple share price rises.
Motivations to invest in large-cap stocks
Large-cap stocks can be a viable option if your ability to hold an investment for five years or more and you want moderate volatility. It can be a smart way to diversify your portfolio and not lose growth prospects by adding a few reliable large caps.
Although large-cap stocks may be the stock of “well-known” companies, it is still important to do your research prior to investing. Also, you might consider adding a large cap ETF or mutual fund into your portfolio.
