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Top 10 Large Cap Stocks To Buy Now | 2021 Large Cap Stocks List


Updated on February 16th, 2021 by Bob Ciura

It is likely that at some point, investors have come across the term market capitalization (or market cap), although many investors may not know what the term means. But the concept of market capitalization is very straightforward.

Market capitalization simply refers to the total value of a company’s outstanding stock. It is calculated by multiplying a company’s shares outstanding by its current share price. Put differently, market capitalization is how much money it would cost to buy every outstanding share of a publicly-traded company.

The biggest stocks, with market caps above $200 billion, are called mega-cap stocks. Just below mega-caps are called large caps.

Large-cap stocks represent businesses with market caps between $10 billion and $200 billion. There are hundreds of large-cap stocks to choose from. With this in mind, we have compiled a list of over 400 large-cap stocks in the S&P 500 Index, with market caps of $10 billion or more.

You can download your free copy of the large-cap stocks list, along with relevant financial metrics like price-to-earnings ratios, dividend yields, and payout ratios, by clicking on the link below:

 

This article will discuss large cap stocks, and an analysis of our top 10 large-cap stocks, ranked according to expected total returns in the Sure Analysis Research Database.

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Overview of Large-Cap Stocks

To calculate a stock’s market capitalization, simply multiply the share price by the number of outstanding shares. For example, a stock with a share price of $100 and 1 million shares outstanding, will have a market capitalization of $100 million. While this is certainly a lot of money, in terms of the stock market, this stock would qualify as a micro-cap.

Stocks classified by market capitalization are separated into multiple tiers. At the bottom is micro-caps—these are very small companies with market capitalizations below $300 million. Next are small caps, which have market capitalizations of $300 million to $2 billion.

After small caps, investors can choose to buy mid-cap stocks, which generally have market capitalizations of $2 billion to $10 billion.

Finally, there are large-cap stocks, which have market capitalizations above $10 billion. Investors are likely familiar with large-cap stocks, as these are the kinds of companies that populate the most well-known index, the Dow Jones Industrial Average.

The Top 10 Large Cap Stocks To Buy Right Now

With all of the above in mind, we created a list of over 400 stocks that each have market capitalizations above $10 billion. But for long-term income investors, these stocks must be filtered down to the best buys today.

The following 10 stocks represent large-caps with market capitalizations above $10 billion, but they also have durable competitive advantages, long-term growth potential, and all pay dividends to shareholders. Some have increased their dividends each year, for many years.

These 10 stocks are ranked by five-year expected total returns. A qualitative assessment of their business models and growth potential was also applied. Because of this, no MLPs were included in the rankings, due to their unique risk factors.

In addition, no more than 3 stocks from any individual sector were included in the top 10 list, to ensure diversification of the list. Plus, only stocks with current dividend yields above the S&P 500 Index average were included, to focus on attractive income-producing stocks.

Finally, only stocks with Dividend Risk scores of C or better were included. This step was taken to focus on stocks with sustainable payouts in addition to their high yields. Stocks are ranked by 5-year annual expected return, from lowest to highest.


Top Large Cap #10: AT&T Inc. (T)

AT&T is the largest communications company in the world, operating in three distinct business units: AT&T Communications (providing mobile, broadband and video to 100 million U.S. consumers and 3 million businesses); WarnerMedia (including Turner, HBO, Warner Bros. and the Xandr advertising platform); and AT&T Latin America (offering pay-TV and wireless service to 11 countries).

AT&T is an especially attractive dividend stock, as it has increased its dividend for over 30 consecutive years. As a result, it is on the prestigious Dividend Aristocrats list.

On January 27th, 2021 AT&T reported Q4 and full-year 2020 results. For the quarter, the company generated $45.7 billion in revenue, down from $46.8 billion in Q4 2019, as the COVID-19 pandemic continues to weigh on results. Reported net income equaled a loss of -$13.9 billion or -$1.95 per share due to non-cash charges. On an adjusted basis, earnings-per-share equaled $0.75 compared to $0.89 in the year-ago quarter. The $0.75 figure does not adjust for -$0.08 in COVID-19 impacts.

Source: Investor Presentation

For the year AT&T generated $171.8 billion in revenue, down from $181.2 billion in 2019. The pandemic impacted revenue across all businesses particularly, WarnerMedia and domestic wireless service revenues. On an adjusted basis earnings-per-share equaled $3.18 for 2020, versus $3.57 in 2019. This figure does not adjust for -$0.43 in COVID-19 impacts. AT&T ended the quarter with a net debt-to-EBITDA ratio of 2.70x.

AT&T also provided a full year 2021 outlook. For this year, the company anticipates 1% revenue growth, adjusted earnings-per-share to be stable with 2020 and a dividend payout ratio in the high-50% range.

AT&T is a colossal business, but it is not a fast grower. From 2007 through 2019 AT&T grew earnings-per-share by 2.2% per year. While the company is picking up growth opportunities, notably in its recent acquisition of Time Warner, we recognize the premiums paid and the fact that the company’s legacy businesses are steady or declining. AT&T is optimistic about generating reasonable growth and the payout ratio had been falling, resulting in excess funds to divert toward paying down debt.

Two individual growth catalysts for AT&T are 5G rollout and its recently-launched HBO Max service. AT&T continues to expand 5G to more cities around the country. On June 29th, AT&T announced it had turned on 5G service to 28 additional markets. AT&T now provides access to 5G to parts of 355 U.S. markets, covering more than 120 million people.

Last year, AT&T launched streaming platform HBO Max. At the end of 2020, AT&T had 41 million combined HBO Max and HBO subscribers in the United States. The new platform is a critical step for AT&T to keep up in the streaming wars.

Shares of AT&T trade for a 2020 price-to-earnings ratio of 9.0, which is below our fair value P/E of 12. The stock also has an attractive dividend yield of 7.2%. Combined with 3% expected annual earnings-per-share growth, we expect total annual returns of 12.2% per year over the next five years.


Top Large Cap #9: Principal Financial Group (PFG)

Principal Financial Group is a financial corporation that operates several businesses including insurance (primarily life insurance), investment management, retirement solutions, and asset management. Principal Financial Group reported its fourth-quarter earnings results on January 28th. Assets under management, or AUM, grew to $810 billion, partially due to rising equity markets which boosted Principal Financial’s equity AUM.

The company’s Retirement and Income Solutions business also performed well during the quarter.

Source: Investor Presentation

Principal Financial Group generated earnings-per-share of $1.48 during the fourth quarter, up 5% compared to the same quarter last year.

For 2020, profits declined from 2019 based on the impact of the coronavirus pandemic, but there was not a steep decline in profitability. Earnings-per-share in 2021 will likely be up again, and current estimates forecast new record profits for the company during the current year.

Principal Financial Group recorded a highly compelling average annual earnings-per-share growth rate of 12% between 2008 and 2019. Growth was a bit uneven, though, as there were some years where profits declined. The company’s asset management business, where Principal Global Investors and Retirement & Income Solutions are the main components, has benefited from solid AUM growth. We expect 5% annual EPS growth over the next five years.

Shares trade for a 2021 P/E ratio of 8.9, based on expected EPS of $6.15 for 2021. Our fair value P/E estimate is a P/E ratio of 11. The combination of P/E expansion, EPS growth and dividends leads to expected returns of 12.9% per year.


Top Large Cap #8: Northrop Grumman (NOC)

Northrop Grumman is one of the five largest U.S. aerospace and defense contractors based on revenue. The company reports four business segments: Aeronautics Systems (aircraft and UAVs), Mission Systems (radars, sensors and systems for surveillance and targeting), Defense Systems (information technology, sustainment and modernization, directed energy, tactical weapons),and Space Systems (missile defense, space systems, hypersonics and space launchers).

Northrop Grumman released excellent fourth-quarter and full-year financial results. For the fourth quarter, revenue increased 17% to $10.2 billion, while diluted adjusted earnings per share increased 16%. Revenue for Aeronautics Systems increased 24% for the quarter, due to higher volumes in restricted programs, E-2D, and Manned Aircraft. Revenue for Defense Systems rose 2% while Mission Systems increased 10%. Revenue for Space Systems increased 31% for the quarter.

For the year, total revenue increased 9% to $36.8 billion, while adjusted EPS increased 11.5% to $23.65 for the full year.

Source: Investor Presentation

The company won $52.9 billion in contracts in 2020, with a book-to-bill ratio of 1.4 and the total backlog increased 25% to $81.0 billion at year-end. Northrop Grumman is selling its IT Services business for $3.4 billion, which will be used for share buybacks and retiring debt. The company issued guidance of $35.1 billion to $35.5 billion in sales and $23.15 to $23.65 in EPS for 2021, accounting for the divestment.

Looking forward, the company will achieve both revenue and EPS growth through its involvement in the F-35, B-21, E2-D and other platforms. We expect average annual EPS growth of 8% out to 2026.

As a major U.S. defense contractor, Northrop Grumman has an entrenched position in many of its end markets. Of note are the B-2, B-21, E-2D, E-8C, Global Hawk and Triton platforms. These platforms have decades long life cycles and Northrop Grumman has the expertise and experience to perform sustainment and modernization. These characteristics lead to a good degree of recession resistance.

The stock has a P/E ratio of 12.4, below our fair value estimate of 15.0. The stock also has a 2.0% dividend yield. Including expected EPS growth, total returns are expected to reach 13.7% per year over the next five years.


Top Large Cap #7: Morgan Stanley (MS)

Morgan Stanley is a financial holding company that provides various financial products and services to corporations, governments, financial institutions,and individuals worldwide. The company operates through Institutional Securities, Wealth Management, and Investment Management segments.

On January 20th, 2020, Morgan Stanley reported its fourth-quarter and full year results. The company achieved record annual revenues of $48.2 billion, a 16.0% increase year-over-year, and equally impressive earnings-per-share growth of 24.5% growth. Results were boosted by all business segments growing. Institutional securities revenues, for instance, increased by 27.5%, driven by record inflows amid the stock market’s prolonged rally.

Along with a continued improvement in global economic growth, acquisitions are a key growth catalyst for Morgan Stanley. For example, in 2020 the company closed on its acquisition of E-Trade.

Source: Investor Presentation

Also in October, Morgan Stanley separately announced the acquisition of Eaton Vance, a giant in the asset management industry, for approximately $7 billion.

The company’s recent acquisitions of E-Trade and Eaton Vance should not only achieve operational efficiencies as the company markets its services to a larger customer base with more assets under management, but its cash flow should become even more stable.

These acquisitions should further transition Morgan Stanley’s revenues into a more consistent stream, as both E-Trade and Eaton Vance charge their customers on a recurring basis, befitting from management fees. We expect 10% earnings-per-share growth over the next five years, due to organic growth, acquisitions, and share repurchases.

Morgan Stanley’s resiliency has been proven during the ongoing pandemic, not only by producing excellent financials but also by executing large acquisitions. Its competitive advantage lies in its sheer size, currently being the second-biggest wealth management firm in the U.S. only behind Bank of America (BAC).

Shares of Morgan Stanley trade for a P/E ratio of 11.7, below our fair value estimate of 13. The combination of an expanding P/E ratio, 10% expected EPS growth and the 1.9% dividend yield, lead to total expected returns of 13.7% per year over the next five years.


Top Large Cap #6: Merck & Company (MRK)

Merck & Company is one of the largest healthcare companies in the world. Merck manufactures prescription medicines, vaccines, biologic therapies, and animal health products. On 2/5/2020, Merck announced that it was spinning off its women’s health, legacy brands and biosimilar products into a separate company. These businesses represent ~$6.5 billion of revenues. The transaction should be completed in the first half of 2021.

Merck released fourth-quarter and full-year results on 2/4/2021. Quarterly revenue increased 5.4% to $12.5 billion, but was $140 million lower than expected. Reported net income was a loss of $2.094 billion, or -$0.83 per share, compared to net income of $2.357 billion, or $0.92 per share, in the previous year. Net income and earnings-per-share included significant charges related to acquisitions and intangible asset impairments.

For the year, revenue grew 2% to $48 billion. Reported net income of $2.78 per share, compared unfavorably to $3.81 per share, in the prior year. Again, reported net income and earnings-per-share included significant charges related to acquisitions and intangible asset impairments. Adjusted EPS of $5.94 per share for 2020 was up 14.5% from $5.19 per share in 2019.

Oncology continues to be a growth driver for Merck.

Source: Investor Presentation

Keytruda, which treats cancers such as melanoma that cannot be removed by surgery, and non-small cell lung cancer, remains an excellent source of growth as revenues were higher by 28% for the quarter and 30% for the year. The product eclipsed the $14 billion mark for revenue in 2020. Merck’s HPV vaccine Gardasil returned to growth in the fourth quarter, as sales improved 44% due to replenishment of doses that were borrowed in the fourth quarter of 2019 from the CDC Pediatric Vaccine Stockpile.

Merck expects adjusted EPS of in a range of $6.48 to $6.68 and revenue of $51.8 billion to $53.8 billion for 2021. We expect 5% annual EPS growth over the next five years. In addition to valuation changes and the 3.5% dividend yield, we expect total returns of 13.7% per year for Merck stock.


Top Large Cap #5: Enbridge Inc. (ENB)

Enbridge is an oil & gas company that operates the following segments: Liquids Pipelines, Gas Distributions, Energy Services, Gas Transmission & Midstream, and Green Power & Transmission. Enbridge currently trades with a market capitalization of ~$70 billion.

Note: As a Canadian stock, a 15% dividend tax will be imposed on US investors investing in the company outside of a retirement account. See our guide on Canadian taxes for US investors here.

Enbridge reported its fourth-quarter earnings results on February 11th. The company generated revenues of CAD $10 billion (US$7.9 billion) during the quarter, down 19% in the previous year’s quarter. Revenues were down despite the fact that new projects were placed into service.

Fourth-quarter adjusted EBITDA increased 1% year over year, as the company’s revenue declines were offset by lower costs. Distributable cash flows totaled US$1.7 billion, or US$0.86 on a per-share basis, which easily covered Enbridge’s dividend payments.

A breakdown of Enbridge’s performance in 2020 can be seen in the image below:

Source: Investor Presentation

Enbridge is forecasting distributable cash flows in a range of CAD$4.70-5.00 for 2021. Using current exchange rates, this equates to USD$3.82 at the midpoint, which would be up 4% versus 2020’s record level.

We expect 4.5% annual cash flow per share growth for Enbridge over the next five years, due primarily to new projects. Enbridge is one of the largest pipeline operators in North America. Its vast asset footprint serves as a tremendous competitive advantage, as it would take many billions of dollars of investments from new market entrants if they wanted to be able to compete with Enbridge.

On December 8th, the company also raised its dividend by ~3%. Shares currently yield over 7%. The combination of dividends, DCF-per-share growth, and an expanding valuation multiple could lead to total annual returns of 13.9% per year over the next five years.


Top Large Cap #4: L3Harris Technologies (LHX)

L3Harris Technologies is the result of a 2019 merger between L3 Technologies and Harris Corporation which formed the sixth-largest defense contractor. The company now reports four business segments: Integrated Mission Systems, Communication Systems, Space and Airborne Systems, and Aviation Systems. The majority of the L3Harris’ sales are to the U.S. Government or to other defense contractors.

L3Harris reported fourth-quarter and full-year results on January 29th. Quarterly revenue declined 3.6% to $4.66 billion, while adjusted EPS increased 10% to $3.14 from $2.85 (pro forma prior-year) due to merger synergies. For the full-year, revenue increased 0.5% to $18.2 billion while adjusted EPS increased 13% for 2020.

Source: Investor Presentation

While revenue was negatively impacted by the coronavirus pandemic in 2020, the company expects a snap-back in 2021. The company guided for 3.0% to 5.0% organic revenue growth for 2021, along with earnings-per-share of $12.60 to $13.00 in 2021. We expect 10% annual EPS growth over the next five years, comprised of revenue growth and share repurchases.

As a large defense contractor, L3Harris has competitive advantages related to defense contracting. The company develops and manufactures complex and bespoke systems for the Department of Defense. Notably, L3Harris is the market leader in tactical communications. Furthermore, L3Harris has built long-term relationships with both the DoD and prime contractors in its areas of expertise. These attributes make it somewhat recession-resistant.

Shares appear undervalued, with a P/E ratio of ~15 which is below our fair value estimate of 16. We also expect 10% annual EPS growth, and the stock has a 1.8% dividend yield. Putting it all together, we expect total returns of 14.1% per year.


Top Large Cap #3: Lockheed Martin (LMT)

Lockheed Martin is the world’s largest defense company. About 60% of the company’s revenue comes from the U.S. Department of Defense, with other U.S. government agencies (10%) and international clients (30%) making up the remainder.

The company consists of four business segments: Aeronautics (~40% of sales) which produces military aircraft like the F-35, F-22, F-16and C-130; Rotary and Mission Systems (~26% sales) which houses combat ships, naval electronics and helicopters; Missiles and Fire Control (~16% sales) which creates missile defense systems; and Space Systems (~17% sales) which produces satellites.

Lockheed Martin reported another year of growth in 2020. For the fourth quarter, company-wide net sales increased 7% to $17 billion, while earnings-per-share increased 21%. All four business segments again increased net sales. For the year, company-wide net sales increased 9% to a record $65.4 billion while diluted GAAP earnings per share increased 12% to a record $24.50 per share.

Source: Investor Presentation

Lockheed Martin’s backlog is approximately $147.13 billion, driven by increases in Aeronautics, Missiles and Fire Control, and Rotary and Mission Systems, offset by a decline in Space. The company’s outlook for 2021 provides from revenue of at least $67.1 billion and diluted earnings per share of at least $26.00 per share.

Lockheed Martin is an entrenched military prime contractor. It produces aircraft and other platforms that serve as the backbone for the U.S. military and other militaries around the world. This leads to a competitive advantage as any new technologies would have to significantly outperform extant platforms. These platforms have decades-long life cycles and Lockheed Martin has expertise and experience to perform sustainment and modernization.

The combination of P/E expansion, 8% expected EPS growth and the 3.1% dividend yield to generate 15.2% annualized total returns over the next five years.


Top Large Cap #2: Pfizer Inc. (PFE)

Pfizer Inc. is a global pharmaceutical company that focuses on prescription drugs and vaccines. The company generates annual revenue above $51 billion. Pfizer’s top products include Eliquis, Ibrance, Prevnar 13, Enbrel (international), Chantix, Sutent, Xtandi, and Xeljanz.

Pfizer performed relatively well in 2020, considering the massive economic impact of the coronavirus pandemic.

An overview of Pfizer’s performance in 2020 can be seen in the image below:

Source: Investor Presentation

Full-year revenue increased 3% operationally, or 8% excluding divestitures. For the year, adjusted earnings-per-share of $2.22 increased 16% from the previous year.

For 2021, Pfizer expects adjusted earnings-per-share in a range of $3.10 to $3.20, which would represent 42% growth in the upcoming year. The company is anticipating a significant boost from its coronavirus vaccine.

Pfizer’s current product line is expected to produce revenue and earnings growth over the next several years. Acquisitions, such as the $11 billion takeover of Array BioPharma, are a growth catalyst, as is R&D investment in new products. Pfizer has also invested heavily in its own pipeline, and now has multiple products such as Eliquis (cardiovascular), Ibrance (oncology), Xtandi (oncology), and Xlejanz (rheumatoid arthritis).

Pfizer is one of the largest pharmaceutical companies in the world with a huge R&D platform. This gives Pfizer the ability to bring new therapies to market, partner with smaller companies or acquire entire companies outright. The current pipeline is robust, and some will likely be blockbuster drugs.

In the meantime, the stock has a high dividend yield of 4.5%. Combined with a rising valuation multiple and expected EPS growth of 6% per year, we expect total annual returns of 16.3% per year over the next five years.


Top Large Cap #1: Bristol-Myers Squibb (BMY)

Bristol-Myers Squibb was created when Bristol-Myers and Squibb merged in 1989, but Bristol-Myers can trace its corporate beginnings back to 1887. Today this leading drug maker of cardiovascular and anti-cancer therapeutics has annual revenues of about $42 billion.

The past year has seen the company transform itself, due to the $74 billion acquisition of Celgene, a peer pharmaceutical giant which derived almost two-thirds of its revenue from Revlimid, which treats multiple myeloma and other cancers.

The end result is that Bristol-Myers Squibb is now an industry goliath, which continues to generate strong results even during the coronavirus pandemic.

Source: Investor Presentation

The past year has seen the company transform itself, due to the $74 billion acquisition of Celgene, a peer pharmaceutical giant which derived almost two-thirds of its revenue from Revlimid, which treats multiple myeloma and other cancers.

Bristol-Myers announced fourth quarter and full-year results on 2/4/2021. For the quarter, revenue grew 39% to $11.1 billion, topping estimates by $329 million. The company reported a net earnings loss of $10 billion, or $4.45 per share, compared to a net loss of $1.1 billion, or $0.55 per share, in the prior year. Reported net earnings included significant charges related to recent acquisitions.

Meanwhile, adjusted earnings-per-share of $1.46 per share for the fourth quarter, grew 20% year-over-year. For the year, revenues grew 63% to $42.5 billion while adjusted EPS improved 37% to $6.44.

BMY has positive growth potential moving forward. Not only is the Celgene acquisition an immediate catalyst, the company’s strong pharmaceutical pipeline will fuel its future growth. For example, Revlimid sales increased 18% for the fourth quarter, while Eliquis, which prevents blood clots, reported sales growth of 12% due to high demand in the U.S. and internationally, offset by lower prices. Another growth product is Orencia, which treats rheumatoid arthritis, which grew revenue by 9%. We expect 3% annual earnings growth over the next five years for BMY.

Bristol-Myers raised its guidance for adjusted EPS to a range of $7.35 to $7.55 from $7.15 to $7.45 previously. The company’s recently announced $2 billion addition to its share repurchase is a positive catalyst for earnings-per-share growth.

Based on expected EPS of $7.45, shares of BMY trade for a forward P/E ratio of 8. Our fair value P/E estimate is a P/E of 13-14, which is more in-line with the pharmaceutical peer group. Lastly, BMY has a 3.3% dividend yield, leading to total expected returns of 16.4% per year over the next five years.

Final Thoughts

With so many various terms, investing can seem overly complex. Market capitalization is a term all stock market investors should understand, and the good news is that it is a fairly simple concept. The market cap of a stock refers to the total value of all its outstanding shares.

Market cap gives investors a better gauge of a company’s size, which can also give clues about its competitive advantages and future growth potential.

Large-caps are generally safer than small-caps, because they are less volatile and tend to have more established business models. Large-caps also have a greater tendency to pay dividends to shareholders. For these reasons, income investors looking to reduce volatility in their stock portfolios should give special consideration to large caps.

In particular, we believe the 10 large cap stocks on this list are leaders in their respective industries, with proven business models and attractive dividends.

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