If you’re like most investors, you already have some large-cap companies in your portfolio. These are the stocks of firms with huge market capitalizations, indicating that their market worth is considerable. Large-cap stocks are distinguished from small-cap and mid-cap equities by their size.
What exactly is a large-cap stock?
A large-cap stock is any publicly listed corporation with a market capitalization more than $10 billion. Large-cap equities, also known as big-cap stocks, are sometimes regarded as the stock market’s stalwarts or blue chips. Consider Walt Disney (NYSE:DIS), Coca-Cola (NYSE:KO), and General Motors (NYSE:GM) – established behemoths with dominant positions in their respective sectors.
Large-cap corporations with market capitalization of more than $200 billion, such as Amazon (NASDAQ:AMZN) and JPMorgan Chase (NYSE:JPM), also come into this group. Some investors see them as a distinct class of equities known as mega-caps, although for most purposes, they are just “giant” large-caps.
Although many investors prefer smaller, fast-growing firms, large-cap stocks may be quite beneficial for those who take the time to study them. Moreover, since these behemoth corporations are less volatile than their smaller counterparts, they may assist to diversify a portfolio of smaller equities while still giving strong share price growth over time. Its main benefit is that they are a safer investment since they are larger and have more consistent earnings streams than smaller enterprises. As a result, during a bad market, large-cap companies tend to outperform small-cap equities.
There are certain large-cap growth companies accessible, which often include businesses like Facebook parent Meta Platforms (NASDAQ:FB) or chipmaker Nvidia (NASDAQ:NVDA). A growth stock has no specific definition, but in general, any firm that increases its sales by 20% or more is called a growth stock.
The exception is large-cap growth stocks. Large-cap stocks are usually mature businesses with limited growth potential. Investors looking for strong growth may want to invest in smaller firms at the lower end of the market size spectrum.
Large-cap corporations are often older and more established, and they provide consistent dividends. While not all are household names, several are well-known. The large-cap blue chips are solid companies with reputable management teams, solid credit ratings, and a track record of profitability. Others, often industrial behemoths, are distinguished by cyclical business cycles, which means that their earnings and stock values tend to change in tandem with the wider economy. Some large-cap firms are rapidly expanding and may have been in the mid-cap or small-cap bracket just a few years ago.
During the last decade, large-cap equities have outperformed their smaller counterparts. They have also done so with less volatility, since the S&P 500 did not fall as much as the Russell 2000 when the COVID-19 pandemic struck in March 2020.
The top three large-cap stocks in 2023
Here are some great large-cap stocks to look into:
1. McDonald’s (NASDAQ:SBUX)
Starbucks has consistently outperformed the wider market since its initial public offering (IPO) in 1992, and it seems ready to gain market share as it rebounds from the epidemic. Starbucks is a wonderful example of a large-cap company with growth potential in China, digital, and delivery, as well as consistent earnings sources. The firm has significant competitive advantages, such as its well-known brand, popular loyalty programs, and technological efforts like Mobile Order & Pay.
Starbucks has experienced difficulties such as a pandemic lockdown in China, a unionization campaign, and a tight labor market in the United States. Yet, the corporation has survived tough times in the past and should do so again.
The firm began paying dividends in 2010 and has increased them every year since, positioning it as a possible future Dividend Aristocrat.
2. MarketLibre (NASDAQ:MELI)
MercadoLibre, Latin America’s biggest e-commerce site, is an excellent example of a large-cap firm that is still rapidly expanding. With its dominant e-commerce company and shipping network in MercadoEnvios, MercadoLibre is comparable to Amazon, but it also offers unique solutions for Latin America, such as supplying point-of-sale equipment for brick-and-mortar shops.
This is one component of the company’s rapidly expanding payment mechanism, MercadoPago. Once a service similar to PayPal (NASDAQ:PYPL) for MercadoLibre customers, it has evolved into something like to a global bank in Latin America, where it is used to make payments in locations like grocery shops and petrol stations.
3. Walmart (NYSE:WMT)
Walmart is the world’s biggest retailer as well as the world’s largest corporation in terms of revenue. It has several competitive advantages, including economies of scale that benefit it, a reputation for inexpensive pricing, and shops within 10 miles of 90% of the US population.
But what distinguishes Walmart from other Dividend Aristocrats is that it is evolving into more than simply a retailer. By opening health clinics, the corporation is utilizing its physical base to penetrate areas such as healthcare. It also created a financial firm in early 2021, led by two Goldman Sachs (NYSE:GS) employees. The corporation has created a competitive e-commerce operation, ranking second only to Amazon in the United States, providing it a substantial stake in a quickly increasing sector.
Walmart, with its reputation for inexpensive pricing, is likewise well-prepared to weather a recession or economic crisis.
Top large-cap funds to invest in in 2023
If you don’t want to choose individual large-cap stocks, you may still receive portfolio exposure to the largest corporations by investing in a large-cap exchange-traded fund (ETF) or mutual fund—or even large cap growth funds.
Consider the following large-cap-focused funds:
Vanguard S&P 500 ETF (NYSEMKT:VOO)
The Vanguard S&P 500 ETF is an exchange-traded fund that replicates the performance of the S&P 500 index. Vanguard pioneered the index fund in the 1980s, and funds that follow the S&P 500 are now the most popular. The fund is practically fee-free, with an expense ratio of around 0.03%, making it an excellent choice for beginning investors or those who prefer a passive approach to investing in large-cap companies.
2. Contrafund Fidelity (NASDAQMUTFUND:FCNTX)
Fidelity Contrafund is a mutual fund that invests in large-cap and mega-cap businesses, with an emphasis on large-cap firms with significant long-term profits growth potential. It is substantially more costly than a standard index fund, with an expense ratio of 0.86%, but the fund is actively managed, which means that its management expects to outperform the S&P 500. In principle, the outperformance is more than enough to compensate for the increased costs. Throughout the last five years, the Fidelity Contrafund has beaten the S&P 500 in terms of total return.
How to Assess the Best Large-Cap Stocks
Excellent large-cap stocks come in a variety of flavors. Others, like MercadoLibre, are former small-cap growth companies that simply kept rising; others, like Starbucks, are longstanding participants in sectors that are tough to penetrate at scale; and still others, like Walmart, are flexible behemoths with long histories of solid management and consistent development.
Almost every top large-cap firm has obvious competitive advantages, a strong brand, solid leadership, and a track of of rewarding shareholders via dividends, share buyback plans, or simple long-term share price rise.
Reasons to buy large-cap stocks
Large-cap stocks may be a suitable option if you can keep an investment for five years or more and desire equities with minimal volatility. If your portfolio is dominated by unpredictable growth firms, adding a few reliable large-caps might be a good way to diversify your holdings without losing considerable growth potential.
Note that, although large-cap stocks are sometimes those of firms that “everyone recognizes,” it’s still necessary to complete your research before investing. Another alternative is to increase your ownership in a large-cap-focused ETF or mutual fund.
