Updated on June 15th, 2021 by Bob Ciura
Large cap stocks represent businesses with market capitalizations between $10 billion and $100 billion.
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.
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: Yum! Brands (YUM)
- Top Large Cap #6: AT&T Inc. (T)
- Top Large Cap #5: Morgan Stanley (MS)
- Top Large Cap #4: Lockheed Martin (LMT)
- Top Large Cap #3: Merck & Co. (MRK)
- Top Large Cap #2: Bristol-Myers Squibb (BMY)
- Top Large Cap #1: Comcast Corporation (CMCSA)
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: 11.6%
Yum! Brands is a fast food giant that owns KFC, Pizza Hut, Taco Bell and The Habit Restaurants. It is present in more than 150 countries and has more than 50,000 restaurants, ~60% of which are located abroad. KFC generates about half of the total revenue and operating profit of the company.
An overview of Yum!’s business model and 2020 financial performance can be seen in the image below:
Source: Investor Presentation
Yum! Brands completed its major 3–year transformation project in 2019. It spun–off its Chinese segment and refranchised its stores at a fast pace. As a result, the portion of its restaurants that are owned by franchisees has climbed from 77% before the spin–off to 98% now.
Yum! Brands used proceeds from the sale of its stores to franchisees to buy back shares aggressively. In addition, thanks to the refranchising, the company has become more efficient, with much lower operating expenses and a higher operating margin.
In late April, Yum! Brands reported (4/28/21) financial results for the first quarter of 2021. The company grew its same–store sales and its sales by 9% and 11%, respectively, over last year’s quarter. As a result, it grew its adjusted earnings–per–share by 67%, from $0.64 to $1.07.
Yum! Brands has exhibited impressive performance thanks to its quick adjustment to an off–premise environment. It has outperformed its peers by a wide margin in business performance. Thanks to the impressive momentum of Yum! Brands, we have raised our full–year earnings–per–share forecast from $4.00 to $4.50.
We expect 12% annual EPS growth for Yum! over the next five years. We also feel the stock is overvalued, while shares yield 1.7%. The combination of dividends, expected EPS growth, and a small headwind from a declining P/E multiple could lead to total annual returns of 11.6% per year over the next five years.
- 5-year expected return: 12.1%
AT&T is a giant communications company, offering mobile, broadband and video to 100 million U.S. consumers and 3 million businesses. AT&T is on the Dividend Aristocrats list.
On April 22nd, 2021 AT&T reported Q1 2021 results for the period ending March 31st, 2021. For the quarter the company generated $43.9 billion in revenue, up 2.7% from $42.8 billion in Q1 2020, as higher mobility and WarnerMedia revenue more than offset declines in domestic video, business wireline and Latin America.
Source: Investor Presentation
Reported net income equaled $7.5 billion or $1.04 per share. On an adjusted basis, earnings–per–share equaled $0.86 compared to $0.84 in the year-ago quarter. AT&T ended the quarter with a net debt–to–EBITDA ratio of 3.1x. AT&T also updated its full year 2021 outlook, continuing to expect 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. AT&T is optimistic about generating future growth as the company seeks to slim down.
On February 25th, AT&T announced it will spin off multiple assets into a separate company called New DIRECTV that will own and operate the DirecTV satellite TV business, as well as AT&T TV and U-verse video. AT&T will own 70% of the company, and will sell 30% ownership to TPG for approximately nearly $8 billion, which will be used to pay down debt.
Then, AT&T announced a mega-merger with Discovery (DISCA) in which TimeWarner will merge with Discovery, and AT&T will receive $43 billion in a combination of cash, securities and retention of debt. AT&T shareholders receive stock representing 71% of the new company, with Discovery shareholders owning 29%.
These deals will allow AT&T to become more efficient and refocus itself on its core telecommunications services. The funds raised will provide AT&T additional financial resources to invest in growth, and also to pay down debt to improve the balance sheet.
5G is a significant growth catalyst. AT&T continues to expand 5G to more cities around the country. AT&T now provides access to 5G to parts of 355 U.S. markets, covering more than 120 million people.
Shares of AT&T trade for a price-to-earnings ratio just under 10.0, which below our fair value P/E of 11. The stock also has an attractive dividend yield of 7.1%. Combined with 3% expected annual earnings-per-share growth, we expect total annual returns of 12.1% per year over the next five years.
- 5-year expected returns: 12.1%
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 April 16th, 2021, Morgan Stanley reported its Q1–2021 results for the quarter ending March 31st, 2021. The company achieved another very strong quarter, posting record quarterly revenues of $15.7 billion, a 65.7% increase year–over–year. Earnings-per-share of $2.19 rose 117% from the same quarter last year. Results were boosted by all business segments growing.
Institutional securities revenues increased by 66%, driven by record inflows to assets amid the stock market’s prolonged rally. The company’s recently completed acquisition of E–Trade and the follow–up acquisition of Eaton Vance have proven far more successful than expected, driving operational efficiencies and record profits. To reflect the proportionally lower costs ahead amid economies of scale, we are raising our FY 2021 EPS projection to $7.20.
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 above 12, slightly below our fair value estimate of 13. We also expect 10% annual EPS growth, and the stock has a 1.5% dividend yield. Putting it all together, we expect total returns of 12.1% per year.
- 5-year expected returns: 12.2%
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 strong first-quarter results. Companywide net sales increased 4% while diluted GAAP earnings per share increased 8% to $6.56 year-over-year. All four business segments again increased net sales. The Aeronautics segment increased net sales slightly to $6.387 billion due to increased production of F-16. The company’s outlook for 2021 was increased to revenue of at least $67 billion and diluted earnings per share of $26.40 -$26.70.
Lockheed Martin’s backlog is approximately $147 billion, driven by increases in Aeronautics, Missiles and Fire Control, and Rotary and Mission Systems. Such a large backlog bodes very well for Lockheed Martin’s continued growth.
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 2.6% dividend yield to generate 12.2% annualized total returns over the next five years.
- 5-year expected returns: 13.4%
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.
Merck announced first quarter earnings results on 4/29/2021. Revenue increased 0.2% to $12.1 billion, but missed expectations by $570 million. Adjusted earnings-per-share of $1.40 per share fell 6.7% year-over-year.
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 revenue eclipsed the $14 billion mark in 2020. Keytruda sales increased 16% in the 2021 first quarter, to $3.9 billion.
Source: Investor Presentation
Keytruda has patent protection in the U.S. until 2028, in the European Union until 2030, and in Japan until 2032. Due to this strength, as well as growth in other drugs, we estimate that Merck can grow earnings–per–share by at least 5% through 2026.
Meanwhile, Januvia/Janumet, which treats diabetes and is Merck’s second-highest grossing product, showed some signs of stabilization as revenue was higher by 1%. Animal Health sales increased 17% to $1.4 billion due to strength in demand for companion animal products, and companion animal vaccines.
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 13.4% per year for Merck stock.
- 5-year expected returns: 13.8%
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 giant.
Source: Investor Presentation
Bristol-Myers reported a mixed first-quarter report on April 29th. Revenue of $11.1 billion rose 3% year-over-year, and 8% excluding COVID-19 related buying patterns from the prior-year quarter. However, revenue missed expectations which called for $11.16 billion.
U.S. revenue increased 4% to $7.0 billion in the quarter. International revenues increased 1% to $4.1 billion in the quarter, but declined 5% after excluding foreign exchange impacts. Adjusted earnings-per-share of $1.74 grew 1.2% from the same quarter last year, but missed expectations by $0.07 per share.
The company also reiterated its 2021 non-GAAP EPS guidance range of $7.35-$7.55. Worldwide revenue is expected to increase in the high-single digits for 2021. The company expects to maintain a non-GAAP gross margin of 80.5% for the full year. Therefore, Bristol-Myers Squibb expects 2021 to be another year of growth. We expect 3% annual earnings growth over the next five years for BMY.
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 9.0. 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 2.9% dividend yield, leading to total expected returns of 13.8% per year over the next five years for this blue chip stock.
- 5-year expected return: 14.1%
Comcast Corporation is a media, communications, and entertainment conglomerate. Its operating segments include Cable Communications, NBCUniversal, Theme Parks, Broadcast TV, and Sky. Collectively, through these segments, Comcast offers high-speed Internet, video, voice, wireless, cable networks, filmed TV, and other services. Comcast generates over $100 billion in annual revenue.
Comcast reported 2021 first-quarter financial results on April 29th. For the first quarter, revenue of $27.2 billion increased 2.3% year-over-year, and beat analyst estimates by $470 million. Adjusted EBITDA of $8.41 billion also beat estimates, which called for $7.54 billion. The cable segment performed well, posting its third consecutive quarter of double-digit adjusted EBITDA growth.
Source: Investor Presentation
Separately, Comcast reported reaching 42 million subscribers for its Peacock stand-alone streaming service. Free cash flow of $5.28 billion again beat expectations of $2.74 billion. On an adjusted basis, earnings-per-share of $0.76 beat by $0.18, and represented 7% year-over-year growth.
We expect 12% annual earnings-per-share growth over the next five years, as the company has a long history of growth. From 2010 to 2019, its EPS grew every year, by an average of 19% per year. We expect a recovery as soon as the COVID-19 pandemic ends.
Over the next five years, as the economy normalizes, we see several drivers for the company’s earnings growth. Revenue growth will be driven primarily by a higher customer count and rate increases. Although video revenue is struggling with cord-cutting, higher revenues in the high-speed internet business have more than offset this headwind.
Shares have a relatively low dividend yield of 1.8%, but Comcast has increased its dividend for 13 years in a row. This qualifies Comcast as a Dividend Achiever. You can see the full Dividend Achievers list here.
The combination of dividends and expected EPS growth of 12% per year (with a relatively flat P/E multiple) will fuel expected returns of 14.1% per year.
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.