If you are like many investors, chances are you already own large-cap companies. These stocks represent firms that have large market capitalizations and are highly valued. Because large-cap stocks are larger than small-cap and medium-cap equities they have been given their names.
What does it mean to be a large-cap company?
A large-capstock is any publicly traded corporation with a market cap greater than $10 billion. These large-cap stocks are sometimes called blue chips or market stalwarts. Take Walt Disney (NYSE.DIS), Coca-Cola, and General Motors. These are all established market leaders with strong market positions.
Large-cap companies with a market capitalization exceeding $200 billion also fall under the large-cap umbrella. Although they are considered to be a separate class of equities, investors call them mega-caps. However, for the most part they are large-caps.
Large-cap stocks are often highly profitable for investors who take the effort to understand them. This despite the fact many investors find smaller, more exciting firms to be more rewarding. They can also be used to diversify your portfolio and contribute to the long-term increase in share prices, as they are less volatile than their smaller counterparts. They are safer investments than smaller businesses because they are more established and have consistent earnings streams. In a weaker market, large-cap equities can often outperform small-cap businesses.
There are many large-capable growth companies, including Meta Platforms (NASDAQ;FB) and Nvidia, the chipmaker (NASDAQ:NVDA). A growth stock is a stock whose revenue grows by at least 20%. However, there is no defined definition.
However, large-cap growth stocks are a rare exception. Established corporations often issue large-cap growth stocks. Investors seeking to grow their capital may prefer smaller companies at the lower end.
Large-cap companies are typically older and more well-established and offer reliable dividends. While many are well-known, not all of them are household names. The large-cap blue chip companies are stable businesses with respected management teams, strong credit ratings, and excellent earnings records. Industrial behemoths and others are more prone to cyclical business cycles that cause their stock values and earnings to shift with the economy. Due to their rapid growth, some large-cap firms might have been in the small-cap and mid-cap categories a few years ago.
Over the past decade, large-cap equity have outperformed their smaller counterparts. The S&P 500 lost less than Russell 2000 in March 2020 when the COVID-19 pandemic erupted.
The top three largest large-cap stocks of 2023
Take a look at these outstanding large-cap stocks
1. Starbucks (NASDAQ :SBUX )
Starbucks has outperformed the market since 1992’s initial public offering (IPO). They are ready to increase market share as the economy recovers from the crisis. Starbucks is an example large-cap company with growth potential. There are opportunities in China, digital and delivery. In addition to steady earnings streams, Starbucks is an excellent example. There are many competitive advantages to the firm, such as its brand and popularity, loyalty programs, and digital efforts such as Mobile Order & Pay.
Starbucks has had to overcome obstacles like a China pandemic lockdown, unionization campaigns, and tight U.S. labor markets. But, Starbucks has been through a lot in the past and should be able overcome any obstacles again.
The firm started paying dividends back in 2010 and has been increasing them each year since. This position makes it a potential Dividend Aristocrat.
2. MercadoLibre (NASDAQ:MELI)
MercadoLibre (the largest ecommerce website in Latin America) is an excellent example. This is a large-cap company that is still growing quickly. MercadoLibre is a great example of an e-commerce website that has many parallels to Amazon. It also includes MercadoEnvios which is its leading shipping company. But it also offers unique solutions in Latin America like point-of-sale equipment designed for brick-and–mortar stores.
This feature is part of MercadoPago’s rapidly growing payment method. It began as a similar service to PayPal (NASDAQ.PYPL), for MercadoLibre customers. Now it has grown to become a transnational banking institution in Latin America where it can be used to make payments at supermarkets and petrol stations.
3. Walmart (NYSE:WMT)
Walmart is the largest retailer worldwide and the largest company by revenue. It offers many competitive advantages such as economies of scale, low pricing and stores within 10 miles of 90% of the U.S. Population.
Walmart is not just a long-standing Dividend Aristocrat, it’s expanding beyond retail. Walmart is expanding its presence beyond retail by opening health clinics. Two executives from Goldman Sachs NYSE:GS were recruited to lead the fintech business. The company has established a strong e-commerce presence in the United States, ranking second after Amazon. This provides it with a large stake in a rapidly growing sector. Walmart may be a very different company in five or ten year’s time due to the company’s obvious evolution.
Walmart is well-equipped for surviving a recession and economic crisis because of its low pricing reputation.
Top large-cap mutual funds in 2023
Even if you do not want to invest in specific large-cap stocks you can still get portfolio exposure to the biggest corporations by investing into large-cap-focused mutual funds or exchange-traded funds (ETFs), or even large growth funds.
The following large-cap-focused mutual fund options are worth considering:
1. Vanguard S&P500 ETF (NYSEMKT.VOO).
Vanguard S&P 500ETF is an exchange traded fund that tracks the performance of S&P 500. Today, funds that mirror the S&P 500 continue to be the most popular. This fund offers a fantastic alternative for novice investors and those who prefer a passive approach to investing in large-cap corporations.
Secondly, Fidelity Contrafund (NASDAQMUTFUND:FCNTX)
Fidelity Contrafund mutual fund invests in large and mega-cap stocks. The focus is on large-cap businesses that have significant long-term earnings potential. While the cost ratio of 0.86% is significantly higher than that of an index fund, it is managed actively and its manager strives to outperform S&P 500. In theory, however, the fund’s outperformance is sufficient to compensate for the increased costs. Fidelity Contrafund has outperformed S&P 500 over the last five years in terms of total returns.
How to assess large-cap stocks
There are many outstanding large cap stocks. Some stocks, such MercadoLibre are ex-small-cap growth stocks which kept growing. Others, such Starbucks, are established players within industries that are hard to enter on a large level. And others, Walmart, are multifaceted giants with a long track record of solid management and consistent growth.
Most large-cap companies have observable competitive advantages, strong brands, established management, and a history of rewarding shareholders with dividends, share purchaseback schemes, or just long-term price increases.
Motives to buy large-cap stocks
Large-cap stocks could be an option if you are able to maintain your investment for at most five years and desire equities with moderate volatility. It may be prudent to add some reliable large-caps in a portfolio that is dominated by volatile growth companies to diversify the portfolio without losing potential growth.
Large-cap stocks often come from well-known companies, but it is important to do your research before investing. Consider adding large-cap ETFs or mutual funds to your portfolio.
