What are Large-Cap Stocks?

About as Big as It Gets

A large-cap stock is a company with a market capitalization value of at least $10 billion and will include well established companies who are often deemed as industry leaders. Some will even argue for the category of mega cap stocks which include $200 billion or greater in market capitalization. 

Established Companies with a History of Strong Performances

These would be companies such as Visa, Apple, Google, or Johnson & Johnson. While there is still risk when it comes to investing in large-cap stocks, they are widely considered to be a more stable investment than small-cap or mid-cap stocks. 

This is usually because of the strength of their balance sheet (lots of cash) and their stable revenue streams correlated to their market share. Since they are not high growth in some cases, their stock price might not appreciate as quickly but they will reward common stockholders with dividend payments. 

During early expansion cycles, a common investment trend is to see flows into small-cap, mid-cap stocks because of the early high growth phases.  Their ability to pivot quicker as a company will allow them to capitalize on growth opportunities along with their disruptive nature. 

However, in the later years of the cycle when contraction occurs, investors tend to flow into large cap names because of their stability and they often outperform the market during these times. 

Smaller companies often do not have the balance sheet(resources) to as easily withstand a market downturn. This does not mean large-cap companies are entirely recession proof but because of their stable FCF(Free Cash Flow) they can continue to reward investors with dividend payments.

Every Portfolio Should Hold Large Cap for the Long-Term

Many of the companies classified as Blue Chip are also your standard large-cap companies and will be included in most portfolios. They will be important pieces of an investor’s core long-term investment strategy and will be found in most Blue Chip Growth Portfolios. 

Some large-cap names are considered to be quality growth because of their ability to keep growing revenue above the market rate. These names will often be heavily weighted in most portfolios.