Published on July 17th, 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
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- Overview of Large Cap Stocks
- Top Large Cap #10: L3Harris Technologies (LHX)
- Top Large Cap #9: AT&T Inc. (T)
- Top Large Cap #8: Bank of Nova Scotia (BNS)
- Top Large Cap #7: FedEx Corporation (FDX)
- Top Large Cap #6: Prudential Financial (PRU)
- Top Large Cap #5: Enbridge Inc. (ENB)
- Top Large Cap #4: M&T Bank (MTB)
- Top Large Cap #3: Bank of America (BAC)
- Top Large Cap #2: Discover Financial Services (DFS)
- 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.
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: 13.6%
L3Harris Technologies (LHX) is the result of a merger between L3 Technologies and Harris Corporation completed on June 29, 2019, forming the sixth-largest defense contractor.
The company now reports four business segments including Integrated Mission Systems (30% of revenue); Communication Systems (23% of revenue); Space and Airborne Systems (25% of revenue); and Aviation Systems (23% of revenue). The majority of the L3Harris’ sales are to the U.S. Government or to other defense contractors. The combined companies had pro-forma revenue of over $18 billion in 2019.
L3Harris reported strong results for the first quarter. Company-wide revenue increased 5% to $4.6 billion, while adjusted EPS increased 21% from the same quarter a year ago due to the merger, as well as organic growth.
Source: Investor Presentation
Integrated Mission Systems revenue increased 1%, and had a book-to-bill ratio of 1.37. Meanwhile, revenue for Space & Airborne Systems increased 7%, while Communications Systems revenue increased 5%. Lastly, Aviation Systems revenue increased 11% for the quarter.
The company completed the divestiture of airport security and automation for $1 billion in cash. L3Harris is planning to divest another 8%-10% of revenue. The company adjusted guidance downward due to COVID-19 but is still expecting top line growth and merger synergies to drive an increase in the bottom line. We believe the company is positioned for both top and bottom line growth in high margin market segments.
Its competitive advantages will help it reach these growth objectives. As a large defense contractor L3Harris has competitive advantages related to defense contracting, which often requires knowledge of acquisition regulations and accounting standards particularly for large programs. The company develops and manufactures complex and bespoke systems for the Department of Defense, requiring a skilled work force with security clearances that is not easily replicated.
We are currently forecasting average annual earnings per share growth of 10% out to 2025. Increased defense spending will support top line growth. In addition, earnings growth will be driven by higher margins, and robust share buybacks, as well as cost synergies from the recent merger.
The stock has a 2.0% dividend yield. Combined with 10% expected EPS growth and a modest expansion of the P/E ratio, total shareholder returns could reach 13.6% per year over the next five years.
- 5-year expected return: 14.0%
AT&T is the largest communications company in the world, operating in four 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 unit), and AT&T Latin America (offering pay-TV and wireless service to 11 countries). The company generates $180+ billion in annual revenue.
On April 22nd, 2020 AT&T reported Q1 2020 results for the period ending March 31st, 2020. For the quarter the company generated $42.8 billion in revenue, down from $44.8 billion in Q1 2019, as growth in domestic wireless services and business services partially offset declines in domestic video, legacy wireline services and WarnerMedia.
Source: Investor Presentation
Net income equaled $4.6 billion or $0.63 per share compared to $4.1 billion or $0.56 per share in the year ago quarter. On an adjusted basis earnings-per-share equaled $0.84 compared to $0.86 previously, which does not include a -$0.05 impact from the COVID-19 crisis. AT&T’s net debt-to-EBITDA ratio was ~2.6x at the end of the quarter.
From 2007 through 2019 AT&T grew earnings-per-share by 2.2% per annum. While the company is picking up growth opportunities, notably in its recent acquisitions of DirecTV and Time Warner, the company has a large debt load after the acquisitions, while its legacy businesses are steady or declining. We expect 4% annual EPS growth through 2025.
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. Moreover, after the debt is under control, management has indicated the potential for share repurchases down the line.
One of AT&T’s biggest areas of future growth is in 3G deployment. 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.
The dividend appears secure, as AT&T has an expected payout ratio below 70% for 2020. And, the company is fairly resistant to recessions, having maintained profitability and dividend growth through the Great Recession. With an attractive 6.9% yield, expected EPS growth of 4% per year, and a modest boost from an expanding P/E multiple, we expect total returns of 14.0% per year over the next five years for AT&T stock.
- 5-year expected returns: 14.4%
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 has a market capitalization of $51 billion.
Scotiabank reported fiscal Q2 2020 results on 5/26/20. Revenue increased 2% to C$8.0 billion year-over-year, thanks to a 5.3% gain in net interest income, offset by a 2% decline in non-interest income. Net income fell 41% to C$1.3 billion, due to C$1.85 billion in provision for credit losses, which more than doubled from the year-ago period. On an adjusted basis, earnings-per-share fell 39%.
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 flat as 4% growth in net interest income was offset by an 11% decline in non-interest income. Loans and deposits each increased 4% for the quarter, while net interest margin contracted by 7 basis points.
The best-performing segment for the company last quarter was its Global Banking & Markets business, which registered 25% year-over-year net income growth. Strong trading revenue led to 27% revenue growth for the most recent quarter.
Despite slowing economic growth, we believe the bank is capable of growing EPS by 5% 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 $2.57 per share yields 6.1% right now. In addition to 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: 14.5%
FedEx Corp. is a transportation and shipping company. It offers a variety of services including transportation, e-commerce, and business services. It operates four core segments: FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services. FedEx provides domestic and international shipping for package delivery and freight. It also provides sales, marketing, information technology, communications, customer service, technical support, billing, and collection services.
Source: Investor Presentation
On June 30th, FedEx reported financial results for its Q4 and full-year 2020. For the quarter, revenue decreased by 3% to $17.4 billion against the comparable quarter a year ago. The adjusted operating margin saw an expansion to 5.2%, but EPS still suffered a 49.5% decline, dropping at $2.53. FedEx management noted that there were many headwinds, in regard to COVID-19, which caused operating costs to increase by $125 million.
However, online deliveries saw a surge in volume, as many retail stores were forced to shut down. That partially offset the adverse conditions, allowing the company to achieve a profitable FY2020, reporting full-year EPS at $9.50. The company is not providing an earnings forecast for fiscal 2021 as the timing and pace of an economic recovery are uncertain.
FedEx managed to deliver solid profitability, maintaining an impressive EPS CAGR of 17.1% over the past decade. As the economy reopens, we expect that FedEx will return to positive EPS growth. We maintain EPS growth projections of 6% off of ‘normalized EPS’ of $15.50.
FedEx scores high in safety and quality. It is consistently profitable and has a strong balance sheet. It generates more than enough cash flow to satisfy its debt obligations, invest in growth, and return cash to shareholders. The dividend payout ratio is low, at only 27% of expected EPS.
Considering the sector’s duopolistic nature, with FedEx and United Parcel Service (UPS) being essentially the only market participants, the company generates strong cash flows and enjoys massive economies of scale.
With a P/E of 10.6, FedEx stock trades below our P/E of 15.0. An expanding P/E multiple, plus the 2.5% dividend yield and future EPS growth lead to total expected returns of 14.5% per year through 2025.
- 5-year expected returns: 15.6%
Prudential has increased its dividend for over 10 years in a row. And with a high yield of 6.6%, we view Prudential as a blue-chip stock.
Prudential Financial is a global financial institution with $1.5 trillion in assets under management. The company provides financial products including life insurance, annuities, retirement-related services, mutual funds and investment management.
On May 5th, 2020 Prudential released first quarter 2020 results. Prudential reported a net loss of $271 million, or $0.70 per share. After-tax adjusted operating income of $939 million or $2.32 per share, represented a year-over-year decline of 23%. Adjusted book value per share of $99.71 rose 3% year-over-year. Assets under management amounted to $1.481 trillion, up from $1.456 trillion at the same time last year.
You can see an image of Prudential’s core U.S. segment performance in the image below:
Source: Investor Presentation
From 2007 through 2019, Prudential grew earnings-per-share by approximately 4.0% per year. We currently expect 4% annual EPS growth through 2025. Earnings growth will be aided by cost reductions and investment in growth initiatives. Last year, the company launched a process, talent, and technology transformation with expected $500 million of cost savings.
Separately, in September 2019 Prudential acquired Assurance IQ for $2.35 billion, plus an additional payout of up to $1.15 billion if Assurance achieves multi-year growth targets. Assurance is a high-growth direct-to-consumer platform that improves the consumer experience for those looking for health and financial wellness solutions.
Prudential stock trades for a price-to-earnings ratio of 6.1, below our fair value estimate of 8.0. An expanding P/E multiple will add to future shareholder returns. In addition, expected EPS growth of 4% and the 6.9% dividend yield combine for total expected returns of 14.6% per year.
- 5-year expected returns: 14.6%
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 $65 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
In the 2020 first quarter, Enbridge reported a GAAP loss of $1.4 billion, compared with a GAAP profit of $1.9 billion in the same quarter last year. The loss was driven by non-recurring charges such as a non-cash impairment of the company’s investment in DCP Midstream of $1.7 billion, and non-cash unrealized derivative fair value losses of $1.9 billion.
Adjusting for non-recurring charges, adjusted earnings-per-share actually increased 2.5% to $0.83 for the 2020 first quarter. Distributable cash flow of $2.7 billion declined fractionally from the same quarter last year. The company also reaffirmed its full-year outlook, expecting distributable cash flow of $4.50 to $4.80 per share. This should keep the company’s current annual dividend of $2.30 per share intact.
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%-6% 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.
The combination of cash flow growth, dividends, and valuation changes results in expected annual returns of 14.6% per year over the next five years.
- 5-year expected returns: 14.7%
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 has a market capitalization of $13 billion, with annual revenue of $6 billion.
M&T Bank reported first-quarter results on 4/21/2020. The bank earned $2.06 per share, down 39% from the same quarter last year. The steep decline in earnings-per-share was due to a 3% revenue decline, as well as provisions for credit losses of $250 million recorded in the quarter compared with just $41 million in the previous quarter. Average loans and leases decreased 2% for the first quarter, while total deposits increased 6%.
Net interest income declined 7.4% from the previous year to $982 million, a consequence of low interest rates. On the plus side, commercial and industrial loans and commercial real estate loans each grew by 3%. Non-interest income grew 6% from the previous year.
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 $11.85 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. Based on $11.85 per share, the stock has a price-to-earnings ratio of 8.4, 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 of 14.7% per year over the next five years.
- 5-year expected returns: 15.4%
Bank of America was founded back in 1904 and since then, has grown into a global banking juggernaut. It has built a strong presence in credit cards, consumer and commercial lending, wealth management, and other financial services. The market capitalization of $207 billion makes Bank of America one of the largest U.S. banks. It is also a top holding of legendary investor Warren Buffett. You can read more about Warren Buffett stocks here.
Bank of America reported second-quarter earnings on July 16th, with revenue and earnings both coming in ahead of expectations. Earnings-per-share came to $0.37 in Q2, handily beating estimates calling for $0.28. However, earnings fell from $0.40 per share in Q1 and $0.74 per share in last year’s comparable period.
Net interest income was $10.8 billion, down from $12.1 billion in Q1 and $12.2 billion in the year-ago period.
Source: Investor Presentation
Non-interest income picked up the slack, however, rising from $10.9 billion in last year’s Q2 to $11.5 billion. Average loans and leases rose from $990 billion to $1.03 trillion from Q1 to Q2. Similarly, average deposits were up from $1.44 trillion to $1.66 trillion. The bank’s loan-to-deposit ratio was 72% for Q2. Provisions for credit losses came to $5.1 billion, which is on top of $4.76 billion built in Q1, as the bank continues to deal with the difficult economic conditions.
If this trend continues, Bank of America’s earnings growth will remain higher than the company’s revenue growth rate. Bank of America also buys back shares, although they have temporarily been suspended which is another tailwind for earnings-per-share growth.
Bank of America is also an appealing stock for income investors, as it offers a 3.1% dividend yield. Based on normalized earnings-per-share power of $2.75, BAC stock trades for a P/E ratio of 8.5, which is below our fair value estimate of 10.5. The combination of an expanding valuation multiple, dividends, and expected EPS growth result in total expected returns of 14.5% per year over the next five years.
- 5-year expected returns: 21.5%
Discover Financial Services is a holding company that offers a wide range of financial services to its customers. Its operations are divided into the Direct Banking and Payment Services segments, respectively.
The Direct Banking segment issues credit cards under the Discover brand to consumers and small businesses, while the Payment Services segment controls the Diner’s Club business, and offers services through the Discover Network for cards that are issued from third parties.
2019 was another year of across-the-board growth for Discover.
Source: Investor Presentation
Discover Financial Services reported its first quarter earnings results on April 23. The company reported that its revenues totaled $2.9 billion during the quarter, which was 4.7% more than the revenues that Discover Financial Services generated during the previous year’s quarter.
Revenue growth was primarily due to an increase in Discover Financial Services’ net interest income. This, in turn, was made possible primarily thanks to growth in the company’s loan portfolio, which expanded by 5% year-over-year, to $93 billion.
Discover Financial Services generated earnings-per-share of -$0.25 in the first quarter, which was not comparable to the previous year’s Q1 profit. The net loss during the first quarter was based on a big increase in the company’s provisions for loan losses, as Discover Financial expects that charge-offs will increase during the second quarter, and potentially through the second half of the year as well.
Discover Financial Services’ earnings-per-share growth outlook is robust when we back out the coronavirus impact in the near-term. One factor for rising profits is growth in Discover Financial Services’ loan balances, which are forecast to grow further over the coming years, following meaningful increases in the mid-single-digits range during the last couple of years.
The impact of Discover Financial Services’ buybacks will play a major role for its earnings-per-share growth as well. The company bought back more than 40% of its shares between 2009 and 2019. Buybacks were suspended in the near term due to the coronavirus crisis, but should resume once operations are back to a more normal level.
Discover stock trades for a 2020 price-to-earnings ratio of 5.8, based on our normalized earnings estimate of $8.50. Our fair value estimate is a P/E ratio of 9-10. Therefore, an expanding P/E multiple could boost annual returns by 10.4% per year through 2025. Combined with 7.5% expected EPS growth and the 3.6% dividend yield, total returns are estimated to reach 21.5% per year over the next five years.
- 5-year expected returns: 28.5%
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 first quarter earnings results on April 28. The company reported revenue of $2.14 billion during the quarter, down 23% from the previous year’s quarter. ONEOK missed the analyst consensus estimate by $830 million, a sizeable miss.
Unfavorable commodity prices were the main reason for the revenue decline. But ONEOK managed to remain quite profitable, which 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 $700 million, which was actually up 8% versus the previous year’s quarter.
Distributable cash flows totaled $520 million during the quarter, up 3% on a year-over-year basis. Distributable cash flow came in at $1.24 on a per-share basis. ONEOK sees 2020 distributable cash flows declining slightly versus 2019, to $1.94 billion, or roughly $4.65 per share.
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 of 6.1. Our fair value estimate is a P/E ratio of 10. An expanding valuation multiple could boost annual returns by 10.4% per year through 2025. In addition, we expect 5% annual DCF-per-share growth, and the stock has a high dividend yield of 13.1%. Total returns are expected to reach 28.5% 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.