A corporation classified as large cap stocks (sometimes known as “big cap”) has a market capitalization of at least $10 billion. The abbreviation “big cap” stands for “large market capitalization.” The market capitalization of a corporation is determined by dividing the total number of outstanding shares by the share price. Stocks of businesses are typically categorized as large cap, mid cap, small cap, or micro cap.
What are large cap stocks?
Even if they are relatively young, large cap stocks are likely to be well established and in charge of their respective industries. This is due to the fact that some businesses that go public immediately have a qualifying market cap of $10 billion or more.
Large cap corporations often have well-known brands and a track record of providing high-quality products and services. Several of these businesses have expanded outside of the United States, and others may even have diversified operations that touch on multiple industries. These businesses will explore for possibilities to merge with similarly sized competitors or to buy smaller businesses as they seek to grow.
Large cap equities still have less room for growth than their smaller and mid-cap competitors, who are still gaining market share. Large cap stocks offer a better trade-off because they are less volatile and subject to big price volatility. Because of this, large caps are viewed as a more cautious investing option than small or mid caps.
Typical examples
Consider well-known titans with dominant positions in their sectors, including Walt Disney, Coca-Cola, and General Motors. The biggest large cap firms, including JPMorgan Chase and Amazon, which have market capitalization of more than $200 billion, also fall under the large cap umbrella. Some investors refer to them as “mega caps,” although for the most part, they are simply “huge” large caps.
There are certain large cap growth stocks accessible, which are often firms like Meta Platforms, the parent company of Facebook, or Nvidia. Although there is no clear definition of a growth stock, in general, any business that sees a 20% or greater increase in revenue qualifies.
Why investors prefer large cap stocks?
Large cap stocks can present extremely lucrative opportunities for investors who take the time to understand them; despite the fact that many investors believe that smaller, rapidly expanding businesses are more interesting. Also, these enormous businesses can serve to diversify a portfolio of smaller stocks while still delivering steady share price increase over time because they are typically less volatile than their smaller counterparts. Since they are more established than smaller businesses and have more stable revenue sources, their main advantage is that they are a safer investment. Because of this, large cap equities frequently do better than small cap stocks during a weak market.
Large cap stocks often represent mature businesses with modest growth potential. Investors looking for significant growth potential could want to put their money into smaller businesses with lower market caps. Large cap corporations often have a longer history, are more established, and offer consistent dividend payments. Several of them are well-known, though not all are household names. Others, typically industrial giants, are distinguished by their cyclical business cycles. This means that their earnings and stock prices typically fluctuate with the state of the economy. Some rapidly expanding large cap companies may have been mid cap or small cap firms only a few years ago.
Top three large cap stocks for 2023
Here are some top-notch large cap stocks to take into account:
1. Starbucks
Since its initial public offering (IPO) in 1992, Starbucks has consistently outperformed the overall market, and it appears that it will continue to do so as it recovers from the pandemic. A solid example of a large cap stock that has growth potential with chances in China, digital, and delivery as well as consistent earnings sources is Starbucks. A well-known brand, well-liked rewards programs, and technical breakthroughs like Mobile Order & Pay are just a few of the company’s many advantages over rivals. The company started paying dividends in 2010, and every year since then, it has raised them, putting it in a position to one day become a Dividend Aristocrat.
2. MercadoLibre
A large cap company that is still expanding swiftly is MercadoLibre, the biggest e-commerce site in Latin America. MercadoLibre and Amazon are similar in many ways thanks to their respective large e-commerce businesses and delivery networks. Nevertheless, it also offers unique solutions for Latin America, such as point-of-sale devices for brick-and-mortar retailers. The company’s swiftly growing MercadoPago payment platform includes that. Initially a service like PayPal for MercadoLibre shoppers, it has developed to become something of a transnational bank in Latin America, where it’s used to make payments at places such as grocery stores and gas stations.
3. Walmart
Walmart is the world’s biggest retailer and the company with the highest global revenue. It has various competitive advantages, including favorable economies of scale, a reputation for offering affordable pricing, and stores located within 10 miles of 90% of the population of the United States.
The fact that Walmart is evolving beyond its traditional role as a store, however, elevates the company above simply being a long-standing Dividend Aristocrat. By expanding medical clinics, the corporation is using its physical base to enter markets like healthcare. Early in 2021, it also established a financial firm and hired two Goldman Sachs employees to run it.
The business has established a strong online presence that ranks second to Amazon in the United States, giving them a significant share in a quickly expanding market. Walmart may seem very different in five or ten years due to the company’s obvious evolution. The company can withstand a recession or other economic crisis thanks to its reputation for offering low pricing.
Guide to investing in large cap stocks
Because the U.S. large cap market is extensively under the watchful eye of both on and off Wall Street, there is a lot of information accessible regarding both the market and specific firms (such as analyst research reports). Many investors, however, find a more hands-off approach appealing because of the research required to separate potentially good stock purchases from bad. Many choose index funds—either mutual funds or exchange-traded funds (ETFs)—that track the whole U.S. large cap market or specific subsets of it to reduce work and increase diversity and possible profits.
Due to the large cap space’s appeal, there are hundreds of funds that follow the large cap benchmarks as well as funds devoted to businesses in certain industries and investing approaches, such as growth versus value. No matter how you choose to invest in large cap equities, it’s crucial to do your homework on each stock or fund before include it in your portfolio. If you wish to review your investing options or your overall investment strategy, you might also want to speak with a financial advisor.
