Updated on April 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.
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 7 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 #7: Lockheed Martin (LMT)
- Top Large Cap #6: British American Tobacco (BTI)
- Top Large Cap #5: Gilead Sciences (GILD)
- Top Large Cap #4: Morgan Stanley (MS)
- Top Large Cap #3: Enbridge Inc. (ENB)
- Top Large Cap #2: Merck & Co. (MRK)
- Top Large Cap #1: Bristol-Myers Squibb (BMY)
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.
The biggest stocks, with market caps above $200 billion, are called mega-cap stocks. Just below mega-caps are called large caps, which have market caps 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 7 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 7 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 7 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 Master Limited Partnerships (or MLPs for short) 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 7 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.
- 5-year expected returns: 11.7%
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 2.7% dividend yield to generate 11.7% annualized total returns over the next five years.
- 5-year expected return: 11.9%
British American Tobacco is one of the world’s largest tobacco companies. 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 its fourth quarter and full year earnings update for fiscal 2020 on February 19. Full-year revenue of $35.6 billion declined 0.4% for the year, but adjusted for foreign exchange, revenues would have increased versus the previous year’s quarter. Results also include some headwinds from the pandemic, which management estimated at around 2%-3% for the year.
The fact that results held steady, despite COVID and currency rate headwinds, can be explained by success in its new category of reduced risk products, where the company grew its market share in 2020.
Source: Investor Presentation
British American Tobacco generated earnings-per-share of $4.58. The company expects constant-currency revenue growth of 3%-5% for 2021, and mid-single digit earnings-per-share growth, which points to earnings-per-share of about $4.80 in 2021.
The stock has a P/E ratio of 8.4, below our fair value estimate of 9.5. The stock also has a high dividend yield of ~7%. Including expected EPS growth, total returns are expected to reach 11.9% per year over the next five years.
- 5-year expected return: 12.2%
Gilead Sciences is a biotechnology company that operates with a clear focus on antiviral medication and treatments. Its main products include treatments for HIV, Hepatitis B,and Hepatitis C (HBV/HCV), but Gilead has also ventured into other areas such as oncology.
Gilead Sciences reported its fourth-quarter earnings results on February 4th.The company generated revenues of $7.3 billion during the quarter, which increased 26% compared to the previous year’s quarter. Gilead’s Hepatitis C franchise continued to shrink, but Gilead’s other businesses showed a strong performance.
The most meaningful growth driver was Gilead’s COVID therapy Vecluvy (remdesivir), which generated revenues of $1.9 billion during the quarter, thereby becoming one of Gilead’s biggest drugs for the quarter. Biktarvy, Gilead’s biggest drug in terms of sales volumes, grew by 30% year over year, although that was offset by some declines in other HIV therapies that were, to some extent, replaced by Biktarvy.
For 2021, Gilead expects revenue of $24.4 billion at the midpoint of guidance. Earnings-per-share are expected in a range of $6.75 to $7.45, which is a relatively wide range since the future path for Vecluvy is not yet known. Gilead also announced that it would increase its dividend by 4.4% to $0.71 per quarter.
At the midpoint of EPS guidance, Gilead stock trades for a price-to-earnings ratio of just 9. We believe Gilead stock is worth a P/E of 11. Gilead stock also has a 4.3% dividend yield, and the company is expected to grow earnings by 5% per year. Total returns are expected to reach 12.2% per year over the next five years.
- 5-year expected returns: 12.3%
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. Services include capital raising and financial advisory services, underwriting of debt, equity, and other securities, as well as advice on mergers and acquisitions.
On January 20th, 2020, Morgan Stanley reported its Q4 and full FY2020 results for the quarter ending December 31st, 2020. The company achieved record annual revenues of $48.2 billion, a 16.0% increase year-over-year, and equally impressive EPS of $6.4, a 24.5% growth vs. FY2019. Results were boosted by all business segments growing.
Source: Investor Presentation
Institutional securities revenues increased by 27.5%, driven by record inflows to assets amid the stock market’s prolonged rally. The company’s recent acquisition completion of E-Trade and the follow-up acquisition of Eaton Vance, should help keep advancing Morgan Stanley’s growth.
Morgan Stanley’s profitability has been expanding continuously, currently featuring a 5-year EPS compound annual growth rate of 16.8%. The 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. Traditionally, banks like Morgan Stanley make money by the spread of lending rates and under writings.
Shares appear undervalued, with a P/E ratio of 12 which is below our fair value estimate of 13. We also expect 10% annual EPS growth, and the stock has a 1.7% dividend yield. Putting it all together, we expect total returns of 12.3% per year.
- 5-year expected returns: 12.5%
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 ~$75 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 12.5% per year over the next five years.
- 5-year expected returns: 13.0%
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 3.4% dividend yield, we expect total returns of 13.0% per year for Merck stock.
- 5-year expected returns: 14.8%
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
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 8.8. 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% dividend yield, leading to total expected returns of 14.8% per year over the next five years for this blue chip stock.
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 7 large cap stocks on this list are leaders in their respective industries, with proven business models and attractive dividends.