Updated on September 11th, 2020 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.
Large-cap stocks represent businesses with market caps above $10 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.
Table of Contents
You can instantly jump to any specific section of the article by clicking on the links below:
- Overview of Large Cap Stocks
- Top Large Cap #10: British American Tobacco (BTI)
- Top Large Cap #9: Omnicom Group (OMC)
- Top Large Cap #8: NetApp Inc. (NTAP)
- Top Large Cap #7: Bank of Nova Scotia (BNS)
- Top Large Cap #6: Enbridge Inc. (ENB)
- Top Large Cap #5: M&T Bank (MTB)
- Top Large Cap #4: Walgreens Boots Alliance (WBA)
- Top Large Cap #3: Principal Financial Group (PFG)
- Top Large Cap #2: Lam Research Corporation (LRCX)
- Top Large Cap #1: ONEOK Inc. (OKE)
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.
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.
- 5-year expected returns: 14.2%
British American Tobacco is among world’s largest tobacco companies, with a market capitalization of $77 billion. British American Tobacco owns many tobacco brands, including Kool, Benson & Hedges, Dunhill, Kent, and Lucky Strike. The company also acquired the remaining 48% stake in Reynolds American Tobacco that it did not already own in July of 2017.
British American Tobacco announced quarterly earnings results on July 31st. Revenue increased 0.8%, while operating profit rose 16.4% from the same quarter a year ago. In addition, a lower tax rate and margin expansion led to 23% growth in diluted earnings-per-share.
Growth in the core combustible brands propelled the company’s growth last year.
Source: Investor Presentation
British American Tobacco continued to lower its leverage during the year, paying down around $3 billion in debt during fiscal 2019. British American Tobacco generated adjusted earnings-per-share of US$4.38, up 9% from the previous year.
British American Tobacco’s earnings-per-share grew by ~6% annually from 2009 through 2019. Profits tend to fluctuate from year to year, in part because of foreign exchange translations. The company reports its results in Pound Sterling.
British American Tobacco has kept its dividend payout ratio in a range of 55%-75% throughout the last decade. Compared to other tobacco stocks, this is not a high payout ratio. Other tobacco companies, such as Altria (MO), pay out ~80% of their profits in the form of dividends. British American Tobacco currently pays a quarterly dividend of 0.526 per share in Pounds Sterling; in U.S. dollars, the $2.78 annualized payout represents an 8.3% dividend yield.
Meanwhile, the stock trades for a 2020 P/E ratio of 7.5, below our fair value estimate of 9.5. The combination of valuation expansion, 3% EPS growth, and the 8.0% dividend yield lead to 14.2% total expected returns through 2025.
- 5-year expected returns: 14.2%
Omnicom is a holding company for advertising agencies. The company offers marketing and corporate communication services, including services such as media planning, digital & interactive marketing, sports & event marketing, brand consulting, public relations, customer relations management, and other marketing services.
In the 2020 second quarter, revenue of $2.8 billion declined 25% from the same quarter last year. Organic sales fell by 23% year-over-year. Revenue also missed analyst estimates, by $160 million.Not surprisingly, the economic downturn due to the coronavirus has caused a drop in advertising spending across a number of industries.
Source: Investor Presentation
Profitability was down as well, due to the impact of operating leverage caused by the revenue decline. Omnicom’s earnings-per-share totaled $0.92 during the second quarter, which was down year over year, but still beat the consensus estimate. Omnicom continued to generate strong cash flows, as free cash flows totaled $720 million during the first half of the current year, down just 10% year over year.
There is no doubt that 2020 will be a year of lower profitability for Omnicom, due to the recession caused by the current pandemic. But Omnicom should be able to recover from this crisis, as soon as the economy is back on track.
Omnicom has a relatively solid dividend growth track record over the last decade, although the company did not raise its dividend during the last financial crisis. Since then, the dividend has been increased annually, and at a compelling pace. Dividends have not been increased in 2020, which is understandable given the coronavirus pandemic. The dividend payout ratio is not high, at just above 40%. Omnicom maintained its dividend during the financial crisis, which is why the risk of a dividend cut seems quite low.
Omnicom trades for a price-to-earnings ratio of 8.7, based on our calculation of $6.00 in true earnings power. Our fair value estimate for the stock is a P/E ratio of 12. In addition to positive returns from an expanding P/E multiple, expected EPS growth of 3.5% per year plus the 5.0% dividend yield result in total expected returns of 14.2% per year.
- 5-year expected returns: 14.4%
NetApp Inc. calls itself the “data authority for hybrid cloud” providing services to simplify and empower a company’s use of its data. Last year products made up 55% of the company’s revenues, software maintenance accounted for 19% of revenues, and hardware maintenance and other services equaled the remaining 26%. The company generated over $5.4 billion in sales last year and earned just under $1 billion in net income.
On August 26th, 2020 NetApp released Q1 fiscal year 2020 results for the period ending July 31st, 2020. (NetApp’s fiscal year ends the last Friday in April.) For the quarter the company reported net revenue of $1.30 billion (above previous guidance of $1.09 billion to $1.24 billion), compared to $1.24 billion in Q1 2020.
Adjusted net income totaled $163 million, compared to $157 million previously, while adjusted earnings-per-share equaled $0.73 (well ahead of prior guidance) versus $0.65 in the year ago period.
Source: Investor Presentation
NetApp also provided an outlook for Q2 2021. For the quarter the company anticipates net revenues of $1.225 billion to $1.375 billion, while non-GAAP earnings-per-share are expected to be in the $0.66 to $0.74 range.
NetApp has growth opportunities, as businesses migrate to public and private clouds. Moreover, increased spend in the industry related to upgrading to faster, higher capacity and more efficient storage solutions ought to bode well for the business, especially in the short-term. However, NetApp operates in an industry with large storage competitors like Dell,VMware, Cisco (CSCO) and more, which gives us pause on the long-term growth story.
Further, NetApp’s legacy network storage business is in decline, requiring the cloud storage segment to do the heavy lifting in terms of overall growth. And recent weakness in renewing licensing agreements gives us some pause as well. The coronavirus crisis will impact demand in the short-term, however, results have held up well so far. We are anticipating uninspiring earnings this year, followed by a pick-up back to a more normalized 6% annual growth rate over the intermediate term. This will depend on the length of the pandemic.
With a P/E of 11.6, NetApp stock trades below our fair value P/E of 15. An expanding P/E multiple, plus the 4.3% dividend yield and future EPS growth lead to total expected returns of 14.4% per year through 2025.
- 5-year expected returns: 14.7%
Bank of Nova Scotia (often called Scotiabank) is the third-largest financial institution in Canada behind the Royal Bank of Canada (RY) and the Toronto-Dominion Bank (TD).
Scotiabank reported fiscal Q3 2020 results in which adjusted earnings-per-share fell 44%. Results were negatively impacted by loan loss provisions of $2.18 billion for the quarter.
You can see a snapshot of Scotiabank’s capital and liquidity position at quarter-end in the image below:
Source: Investor Presentation
In the core Canadian Banking segment, revenue was down by 6%, although loans grew 5% for the quarter. Segment adjusted net income declined 53% year-over-year due to higher provisions for credit losses.
Other segments performed better for Scotiabank in the fiscal second quarter. For example, adjusted net income rose 60% in the Global Banking & Markets business, thanks to higher trading and investment banking revenue.
Despite slowing economic growth, we believe the bank is capable of growing EPS by 2% annually on average through 2025. The bank’s consistent organic and acquired revenue growth will likely drive the top and bottom lines higher in the long run. Scotiabank has a noticeably differentiated growth strategy when compared to its peers in the Canadian banking industry.
While other banks have focused on expanding into the United States, Scotiabank’s future growth should come primarily from its rapidly-expanding International Banking segment, which provides banking services in emerging economies like Mexico, Peru, Chile, and Colombia.
Bank of Nova Scotia pays an annual dividend of $3.60 in Canadian currency; in U.S. dollars, the annual payout of ~$2.73 per share yields 6.5% right now. In addition to 2% expected annual EPS growth and the impact of a rising P/E multiple, we expect total annual returns of 14.4% through 2025.
- 5-year expected returns: 14.9%
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 $63 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.
An overview of Enbridge’s business model can be viewed in the image below:
Source: Investor Presentation
Enbridge reported its second-quarter earnings results on July 29. The company generated revenues of US$6.0 billion during the quarter, which was down ~40% from the same quarter a year ago. Revenues were down despite the fact that new projects were placed into service, but this was mostly due to the fact that commodity prices are a pass-through item.
Adjusted EBITDA increased 3% from the previous year’s quarter, as revenue declines could be fully offset by lower costs. Distributable cash flow of US$1.8billion, or US$0.89 on a per-share basis, easily covered Enbridge’s dividend payment. Despite the coronavirus crisis, Enbridge maintained its guidance for distributable cash flow-per-share of ~US$3.47 for 2020.
Enbridge produced extremely consistent cash-flow-per-share growth from 2009 to 2016, reporting positive growth every year, at a compelling growth rate of 10% annually. We expect 5% annual cash flow per share growth for Enbridge over the next five years, due primarily to new projects. Enbridge put more than $10 billion worth of projects into service during the last two years, and more growth projects are under construction.
Enbridge stock trades for a P/E ratio of 9.1, below our fair value estimate of 11. The combination of cash flow growth, the 7.9% dividend yield, and valuation changes results in expected annual returns of 14.9% per year over the next five years.
- 5-year expected returns: 15.1%
M&T Bank Corporation is a regional bank with branches in New York, Maryland, Pennsylvania and West Virginia. The company has more than 800 total branches. Approximately 47% of M&T Bank’s loan book is composed of commercial real estate, while 29% is comprised of commercial loans, 16% in consumer loans, and the remaining 8% in consumer real estate.
M&T Bank reported second quarter earnings results on 7/23/2020. Adjusted earnings-per-share declined 51% to $1.76, missing estimates by $0.10. Revenue dropped 7.1% to $1.4 billion, $10 million lower than expected. As with the first quarter, the COVID-19 pandemic severely impacted M&T Bank’s financial results. Provisions for credit losses increased to $325 million from $250 million in the first quarter of the year and just $55 million in the second quarter of 2019.
The low interest rate environment has also had an impact on results. Net interest income was $961 million for the quarter, down from $1.1 billion year-over-year. Average loans and leases grew 9% to $97.8 billion due largely to loans associated with the Paycheck Protection Program. Total deposits increased to $115 billion, an improvement of 25% year-over-year and 15% sequentially.
Competitive advantages are difficult to come by for banks given that they all largely offer the same products. That said, its large branch count and overall size provide it with a stable and highly profitable business model. The company is expected to maintain a dividend payout ratio of ~37% for 2019, which indicates the dividend is secure, even in a recession.
Likewise, M&T is highly susceptible to recessions as commercial loans tend to sour at a much higher rate during downturns. M&T remained profitable during the Great Recession, but investors should keep in mind that this is certainly not a defensive stock. Indeed, earnings-per-share declined more than 40% in 2009 during the Great Recession, and we expect similar declines during the next downturn. That said, M&T quickly returned to growth by nearly doubling earnings-per-share in 2010, with continued growth thereafter.
M&T’s primary growth catalysts are revenue growth and share repurchases. We see a low single-digit tailwind from organic revenue growth, as well as a similarly sized tailwind from share repurchases. M&T generates significant excess capital given that its dividend is less than 40% of projected 2020 earnings, so the bank will be able to continue to reduce the float over time. We expect M&T Bank to grow its earnings-per-share by 5.7% annually through 2025.
While we expect earnings-per-share to decline to $8.48 for 2020, we find M&T Bank to have true earnings power of $11.58 per share in a normalized economy. This calculation was based on assets of $126.4 billion, average return on assets of 1.2% over the last decade and 128 million shares outstanding. Using $11.58 per share, the stock has a price-to-earnings ratio of 8.7, below our fair value estimate of 11.5. Multiple expansion, ~5.7% expected EPS growth and the 4.4% dividend yield lead to total expected returns above 15% per year over the next five years.
- 5-year expected returns: 15.4%
Walgreens Boots Alliance is a pharmacy retailer with over 18,000 stores in 11 countries. The stock currently has a $36 billion market capitalization. Walgreens has increased its dividend for 45 consecutive years. Walgreens is a Dividend Aristocrat, an exclusive group of stocks in the S&P 500 Index that each have raised their dividends for 25+ consecutive years.
You can see our full list of 65 Dividend Aristocrats here.
Walgreens reported fiscal third-quarter earnings on July 9th. Sales increased 0.1%, while organic sales increased 1.2%. Sales growth was due largely to comparable store sales growth of 3.0% in the core Retail Pharmacy USA operating segment. However, higher costs and a sizable impairment charge led to an operating loss of $1.6 billion, compared with operating profit of $1.2 billion in the year-ago period. On a per-share basis, Walgreens swung to a loss of $1.95.
Walgreens incurred a non-cash impairment charge of $2 billion related to a re-evaluation of goodwill and intangibles in its Boots UK business. Excluding this, the company reported positive earnings. Adjusted earnings-per-share came to $0.83 for the quarter, although this still represented a year-over-year decline of 44%. However, Walgreens raised its dividend by 2.2%. The company hiked its cost-savings target to more than $2 billion by fiscal 2022, compared with previous forecasts of $1.8 billion.
While the company continues to be plagued by sluggishness and growing competition in the space, there should be plenty of room for growth next year and beyond. For example, in the most recent quarter Walgreens’ pharmacy sales increased 4.6% due to higher brand inflation and specialty sales.
Source: Investor Presentation
Separately, Walgreens announced more than 2,300 products will be available for delivery in Chicago, Atlanta, and Denver through DoorDash.
Walgreens has also announced a partnership with VillageMD in which Walgreens will offer full-service doctor offices co-located at its stores. Over the next five years, the partnership will result in 500 to 700 primary-care clinics in over 30 U.S. markets.
Walgreens’ competitive advantage is its leading market share. Its robust retail presence and convenient locations encourage consumers to use Walgreens instead of its competitors. This brand strength means customers keep coming back to Walgreens, providing the company with stable sales and growth.
Consumers are unlikely to cut spending on prescriptions and other healthcare products even during difficult economic times which makes Walgreens very resistant to recessions. Walgreens’ adjusted earnings-per-share declined by just 7% during 2009 and the company actually grew its adjusted earnings-per-share from 2007 through 2010.
The combination of P/E expansion, expected EPS growth and the 5.4% dividend yield are expected to generate 15.4% annualized total returns over the next five years.
- 5-year expected returns: 15.5%
Principal Financial Group is a financial corporation that operates several businesses including insurance, primarily life insurance, and investment management, retirement solutions and asset management. Principal Financial Group was founded in 1879, and has a market capitalization of $11 billion.
Principal Financial Group reported its second-quarter earnings results on July 27. The company recorded revenues of $460 million for its retirement and income solutions fee business, which was 19% growth from the previous year’s second quarter. Assets under management grew to $702 billion, based on the global equity market recovery during the quarter.
Principal Financial’s successful management of the assets of its customers was showcased by the fact that 80% of AUM outperformed their peer average over the last five years, while 77% of AUM holds a Morningstar rating of 4 or 5 stars.
Principal Financial Group generated earnings-per-share of $1.46 during the second quarter, which easily beat the consensus estimate. Earnings-per-share were down 4% year-over-year. Full-year profits will likely be down versus 2019 due to the coronavirus, but we do not see this as reflective of the underlying earnings power of Principal Financial.
Source: Investor Presentation
Earnings-per-share were down 20% in the first quarter, and profits will likely be down substantially versus 2019 based on the impact of the coronavirus. But we do not see this as reflective of the underlying earnings power of Principal Financial. We calculate fair value and total returns with an earnings power figure of $5.70.
Principal Financial Group recorded a highly compelling average annual earnings-per-share growth rate of 12% between 2008 and 2019. The company’s asset management business, where Principal Global Investors and Retirement & Income Solutions are the main components, has benefited from solid assets under management (AuM) growth A rising number of new customers also helps drive AuM, in addition to market appreciation in normal times. We expect 5% annual EPS over the next five years.
The strong performance and ratings of Principal Financial Group’s actively managed funds, ETFs, and other products is a competitive advantage, as this increases the likelihood of customers choosing Principal to manage their assets. Principal Financial Group’s stock was extremely volatile during the last financial crisis, but its actual underlying performance was not impacted much. Operating earnings declined by just 10% from 2007 to 2008 and started to rise again in 2009. This compares very favorably to the much weaker performance of many other financial companies.
Principal stock trades for a P/E ratio of 8.6, below our fair value estimate of 11. Expansion of the P/E multiple could fuel 5% annual returns through 2025. The combination of 5% expected EPS growth, the 5.5% dividend yield, and an expanding P/E multiple leads to expected total returns of 15.5% per year over the next five years.
- 5-year expected return: 19.8%
Lam Research Corporation designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits around the world. Lam is a major supplier of wafer fabrication equipment and services to the semiconductor industry. Its products address a variety of applications, including thin film deposition, single-wafer cleaning, and plasma tech. The company produced roughly $10 billion in revenue in 2020.
On July 29, 2020, Lam Research reported results for the fourth quarter and Fiscal Year (FY) 2020 ending on June 28, 2020. The company had a great quarter and year overall. For the quarter, the company revenue grew over 18% Year over year (YoY) from $2.4 billion to now $2.7 billion. For the year, revenue increased from $9.7 billion in FY2019 to now $10 billion for FY2020, which is increased by 4.1%.
Source: Investor Presentation
Net income also grew by a substantial amount. Non-GAAP earnings per share (EPS) came in $4.78 for the quarter. This was an increase of 20% compared to the third quarter non-GAAP EPS of $3.98. The company reported earnings of $15.95, an increase of 5.4%. The company provided guidance for the first quarter of FY2021. Management expects revenue of $3.1 billion and EPS of $5.15.
Lam Research has grown its revenue by an impressive 18.3% growth rate over the past ten years, and 16.4% over the past five years. Earnings per share have increased by over 25.8% over the past five years. Lam Research is one of the top 3 semiconductor manufacturing equipment vendors globally, along with Applied Materials and Tokyo Electron.
The company supplies equipment to chipmakers and provides service and maintenance support. Due to propriety technologies and a highly concentrated industry, Lam Research maintains high returns on invested capital in most years and has at least a small economic moat.
However, the semiconductor industry is highly volatile due to commodity-like supply and demand characteristics. There are periods every several years where the industry halts new supply capacity and negatively impacts the revenues of equipment suppliers like Lam Research. During these occasions, the company has encountered periods of very low or negative earnings.
That said, it appears to be more profitable during each down cycle than the one before as its service revenue continues to smooth out its overall results, and the company matures. We expect annual earnings growth to be 16% for the next five years.
Based on expected EPS of $21, Lam Research stock trades for a P/E of 14.1, below our estimate of 16. The combination of valuation expansion, EPS growth and the 1.8% dividend yield lead to total expected returns of nearly 20% per year through 2025.
- 5-year expected returns: 21.6%
ONEOK is an energy company that engages in the gathering and processing of natural gas, as well as a natural gas liquids business and natural gas pipelines (interstate and intrastate). ONEOK also owns storage facilities for natural gas. An overview of ONEOK’s business can be seen in the image below:
Source: Investor Presentation
ONEOK reported its second-quarter earnings results on July 28th. Revenues of $1.66 billion declined by 33% from the previous year’s quarter. ONEOK missed the analyst consensus estimate by $660 million. Despite a steep revenue decline compared to the prior year’s quarter, which can be explained by commodity price movements, ONEOK managed to remain quite profitable. This can be explained by the fact that its input costs declined as well, as those are also partially commodity-price based.
During the most recent quarter, ONEOK generated adjusted EBITDA of $530 million, down 16% versus the previous year’s quarter. Distributable cash flows totaled $300 million, down 40% on a year-over-year basis. Distributable cash flows came in at $0.67 on a per-share basis.
A key advantage for ONEOK is that a significant portion of its revenue, especially after the roll-up of its MLP, are fee-based or hedged, which makes the company less sensitive to commodity price swings. This is why ONEOK can operate with considerable leverage without being in dangerous territory, as its cash flows are not very cyclical. The fee-based nature of ONEOK’s revenues and non-cyclical demand for natural gas, e.g. for heating, is what has made ONEOK recession-proof in the past.
Shares of ONEOK trade for a 2020 price-to-earnings ratio below 7. Our fair value estimate is a P/E ratio of 10. In addition, we expect 3% annual DCF-per-share growth, and the stock has a high dividend yield above 14%. Total returns are expected to reach nearly 22% per year over the next five years.
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.