Many large cap stocks are household names: Hershey, Target, Pfizer. Here’s what that means for investors.
The food in your cupboard is from them. Your back-to-school supplies come from them. You might be drinking a coffee from one right now. What are they? Large cap stocks. To be more specific, they are products, goods, or services from companies like Starbucks (SBUX) or Verizon (VZ) or Exxon Mobile (XOM). These and companies like them are considered large cap stocks (also referred to as “big cap stocks”). They are publicly traded companies that possess market capitalizations ranging from $10 billion to $300 billion.
Before we get into the specifics, what exactly is market cap? Market cap, or market capitalization, measures the total value of a company’s shares. This helps give insight to the size of the company. You can determine the market cap of a company by multiplying the number of outstanding shares by the cost of one share.
For example, if a company was selling 30 millions shares at the cost of $1000 per share, what is the market capitalization? The market cap of that company would be $30 billion.
Investing in large cap stocks
For the most part, large cap stocks are some of the safest stocks on the market. These stocks increase our investment portfolio’s value in two ways: they can deliver capital gains (i.e. share price growth) and they can pay dividends (i.e. cash that lands in your account each quarter). What’s more, some of these companies even raise the dividend annually!
Another benefit of large cap stocks – especially if they are also growth stocks with big dividends – is that the dividend can lower the risk associated with stock investing. That’s because when market corrections come along, people are far less likely to panic and sell a stock that’s paying them a big quarterly dividend than they are to sell a stock that doesn’t pay any dividends at all.
Less panicked selling means less of a share price correction when other stocks are suffering. And of course, when you own shares of healthy, growing companies, you can go on vacation without worrying that the share price is going to be cut in half while you’re on the beach. When you own shares of MetLife (MET), for example, the company’s going to be around for another 10 or 100 years.
Large cap growth stocks have all the characteristics of winning stocks—big sales and earnings growth, big earnings estimates for the next couple of years, leading positions in their industries and stocks that are near new high ground. And even in a market in which it seems like there’s little money to be made, there are almost always profitable opportunities out there. If you pick right, you can make plenty of money. And as large cap stocks reveal, many of the best investments are hiding in plain sight.
As you can see, there are always investment opportunities among popular large cap stocks. As long as you’re focused on the aspects of stock investing that best fit your personal portfolio strategy, you can own shares of great companies that help you reach your financial goals.
If you feel ready to explore dividend stocks, but need some additional guidance and suggestions, download our FREE report, The Five Best Dividend Stocks to Buy Today.
What are your thoughts on large cap stocks? Do they offer enough growth to keep you interested? Share your thoughts in the comments below.