Updated on November 24th, 2020 by Bob Ciura
Spreadsheet data updated daily
Mega-cap stocks are companies with market capitalizations in excess of $200 billion. The total number of mega cap stocks varies depending upon market conditions, but there are generally 25 to 30 in the US, so there are plenty to choose from for investors.
These are the largest stocks in the market today and tend to have recognizable brands, in addition to fairly steady revenue, earnings, and in many cases dividends. Thus, mega cap stocks would tend to appeal to a wide variety of investors as they would typically see less volatility than smaller stocks and have more predictable forward returns.
You can download a free spreadsheet of all 20+ mega cap stocks (along with important financial metrics such as price-to-earnings ratios and dividend yields) by clicking on the link below:
This article includes a spreadsheet and table of all mega cap stocks, as well as detailed analysis on our Top 10 mega cap stocks today.
Keep reading to see the 10 best mega cap stocks analyzed in detail.
The 10 Best Mega Cap Stocks Today
Now that we’ve defined what a mega cap stock is, let’s take a look at the 10 best mega cap stocks, as defined by our Sure Analysis Research Database. The database ranks stocks’ total prospective annual returns, combining current yield, forecast earnings growth and any change in price from the valuation.
Note: The Sure Analysis Research Database is focused on income producing securities. As a result, we do not track or rank securities that don’t pay dividends. Mega caps that don’t pay dividends were excluded from the Top 10 rankings below.
We’ve screened the mega cap stocks with the best prospective returns and have provided them below, ranked in reverse order of forecast total returns. You can instantly jump to any individual stock analysis by using the links below:
- The Coca-Cola Company (KO)
- Johnson & Johnson (JNJ)
- Comcast Corporation (CMCSA)
- Verizon Communications (VZ)
- Bank of America (BAC)
- UnitedHealth Group (UNH)
- Home Depot (HD)
- Merck & Co. (MRK)
- AT&T Inc. (T)
- Pfizer Inc. (PFE)
Mega Cap Stock #10: The Coca-Cola Company (KO)
Coca-Cola is the world’s largest beverage company, as it owns or licenses more than 500 unique non-alcoholic brands. Since the company’s founding in 1886, it has spread to more than 200 countries worldwide. Coca-Cola now has 20 individual brands that each collect $1 billion or more in annual sales. You can read more about Coca-Cola’s 20 billion-dollar brands here.
Coca-Cola enjoys market leadership across a number of product categories and geographic markets.
Source: Investor Presentation
Coca-Cola reported third-quarter earnings on October 22nd, with revenue coming in better than expected, while profit was somewhat light. Total revenue came to $8.7 billion, down -8% year-over-year, but beating estimates for $8.4 billion. The company said it remains challenged in away-from-home categories, as venues like movie theaters and sports stadiums largely remain closed. However, the company noted demand elsewhere is improving.
Organic revenue was off -6% year-over-year due to similar -3% declines in both volume and pricing/mix. North America saw a -3% decline, while Asia-Pacific was off -8% on an organic basis. Profits outperformed as operating margins rose from 28.1% of revenue to 30.4%, a hugely positive result. Margin expansion was primarily attributable to effective cost management, but was partially offset by currency headwinds.
Coca-Cola’s competitive advantages include its unparalleled suite of beverage brands,as well as its efficient global distribution network. Coca-Cola is also extremely resistant to recessionary environments, having increased its earnings-per-share during and after the 2008 financial crisis.
Coca-Cola is a particularly attractive stock for income investors, as the company has increased its dividend for more than 50 consecutive years. It is on the exclusive list of Dividend Kings. You can see all 30 Dividend Kings here.
We expect 7.5% annual EPS growth over the next five years, although 2020 will be a challenging year due to the coronavirus pandemic. The stock also has a 3.1% dividend yield. We view the stock as overvalued right now, resulting in total expected returns of 5.7% per year.
Mega Cap Stock #9: Johnson & Johnson (JNJ)
Johnson & Johnson is a healthcare giant with a market capitalization of nearly $400 billion. It has very large businesses across healthcare, including pharmaceuticals, medical devices, and consumer health products. The company has annual sales in excess of $81 billion.
Johnson & Johnson announced third-quarter earnings results on October 13th. Revenue increased 1.7% to $21.1 billion, topping estimates by $930 million. Adjusted earnings-per-share of $2.20 topped estimates by $0.22, and increased nearly 4% increase from the same quarter last year. Global pharmaceutical continued to perform well, with sales growing 5%, while consumer sales grew 1.3%. These segments offset weak performance in medical devices, where sales fell 3.6% for the quarter.
Source: Investor Presentation
Johnson & Johnson’s key competitive advantage is the size and scale of its business. It invested over $11 billion in R&D last year to grow its market share. J&J is a worldwide leader in a number of healthcare categories, with 26 individual products or platforms that generate over $1 billion in annual sales. J&J’s diversification allows it to grow each year. It has increased its adjusted operational earnings for 36 consecutive years.
J&J performed very well in the previous recession of 2008-2009. Earnings-per-share grew by 10% in 2008, and 1% in 2009, during the Great Recession. J&J’s resilience stems from the fact that as a healthcare manufacturer, its customers cannot stop purchasing their products, even in a recession. This gives J&J steady profits, which allows it to continue increasing its dividend each year. The company has an expected payout ratio of 51% for 2020, which indicates sufficient coverage of the dividend.
We expect 6% annual earnings-per-share growth over the next five years. Pharmaceuticals are a major growth catalyst as well. In the third quarter, J&J saw 44% growth from Darzalex, which treats multiple myeloma. This drug also saw increased uptake rates for a method of administering medication that was approved in the second quarter. Separately, revenue for lymphoma therapy Imbruvica increased 12%.
J&J has increased its dividend for over 50 consecutive years, which makes it a Dividend King. Continued dividend growth is very likely for many years, due to the company’s durable competitive advantages and market leadership. J&J also has a strong balance sheet with a credit rating of AAA from Standard & Poor’s. It is one of only two U.S. companies to hold the perfect credit rating, along with Microsoft (MSFT).
The combination of valuation changes, EPS growth, and the 2.8% dividend yield lead to total expected returns of 6.1% per year over the next five years.
Mega Cap Stock #8: Comcast Corporation (CMCSA)
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 was founded in 1963, has $109 billion in annual revenue, and trades for a market capitalization of $218 billion.
Comcast reported its third-quarter earnings results on 10/29/20. For the quarter, the company’s revenues declined 4.8% to $25.5 billion, adjusted EBITDA declined 11.3% to $7.6 billion, and adjusted earnings-per-share (EPS) declined 17.7%.
Source: Investor Presentation
However, free cash flow rose 10.5% to nearly $2.3 billion. Comcast experienced record net additions of 556,000 Cable Communications customers in the quarter, and also added 633,000 High-Speed Internet customers and 187,000 wireless lines. NBCUniversal revenue was down 19%.
Comcast is one of the largest companies in the telecommunications and entertainment industry. The whole cable industry is impacted by the cord-cutting trend, as some customers are ditching traditional pay-TV entirely in favor of streaming services. Fortunately, consumers still need Internet service for streaming, and Comcast has so far been able to withstand this trend through growth from its other businesses.
We expect COVID-19 to be a temporary drag on Comcast. Another factor improving Comcast’s safety is its balance sheet, as the company focused on deleveraging following the Sky takeover. Comcast’s consolidated net-debt-to-adjusted-EBITDA fell from 2.9x to 2.8x from the 2019 third quarter.
We expect 7% annual earnings-per-share growth over the next five years. The company has a long history of growth. From 2010 to 2019, its EPS grew every year, by an average of 19% per year over that period. We expect a recovery as soon as the 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 Cable Communications through 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.
The combination of EPS growth, valuation changes and the 1.8% dividend yield lead to total expected returns of 7.1% per year.
Mega Cap Stock #7: Verizon Communications (VZ)
Verizon is a telecommunications giant. Wireless contributes three-quarters of all revenues, and broadband and cable services account for about a quarter of sales. The company’s network covers ~300 million people and 98% of the U.S. Verizon has now launched 5G Ultra-Wide band in several cities as it continues its rollout of 5G service. Verizon was the first of the major carriers to turn on 5G service.
Verizon released earnings results for the third quarter on 10/21/2020. Revenue fell 4.1% to $31.5 billion, missing estimates by $100 million. Adjusted earnings-per-share of $1.25 matched last year’s result, but was $0.03 higher than expected.
Source: Investor Presentation
Verizon had a total of 553K retail postpaid net additions, including 428K postpaid smartphone net additions, compared to estimates of 311K postpaid net additions. Churn remains very low. Wireless retail postpaid churn was 0.89% while retail postpaid phone churn was 0.69%. Consumer revenue decreased 4.3% to $21.7 billion due to a severe decline in wireless equipment revenue as a result of lower customer activity. Wireless service revenue increased 0.7% to $13.4 billion.
Revenues for the Media segment decreased 7.4% to $1.7 billion. COVID-19 has impacted search and advertising revenue, but Verizon noted that this segment continues to see increased customer engagement on its digital properties. Verizon now expects adjusted EPS growth of 0 to 2% compared to its previous forecast of down 2% to up 2%.
One of Verizon’s key competitive advantages is that is often considered the best wireless carrier in the U.S. This is evidenced by the company’s wireless margins and very low churn rate. Its reliable service allows Verizon to maintain its customer base as well as give the company an opportunity to move customers to higher-priced plans. Verizon is also in the early stages of rolling out 5G service, which will give it an advantage over weaker carriers.
We expect 4% annual EPS growth over the next five years. The stock also has a 4.2% dividend yield. In addition to a small bump from an expanding P/E multiple, we expect total returns of 8.3% per year for Verizon stock.
Mega Cap Stock #6: Bank of America (BAC)
Bank of America provides traditional banking services,as well as non-banking financial services to customers all over the world. Its operations include Consumer Banking, Wealth & Investment Management and Global Banking & Markets.
Bank of America reported third-quarter earnings on October 14th, with revenue coming in under expectations, while earnings were slightly better. Total revenue declined 11% year-over-year to $20.3 billion as the company continues to grapple with an unprecedented economic slowdown that impacted credit quality across many different lines of business.
Net interest income was down -17% year-over-year to just $10.1 billion, which was negatively impacted by lower interest rates.
Source: Investor Presentation
Non-interest income fared better, but still fell -4% year-over-year to $10.2 billion. Lower consumer fees were largely offset by strong trading and investment banking results.
Non-interest expense was down -5% to $14.4 billion as COVID costs and higher litigation expense were more than offset by the absence of an impairment charge that occurred in the year-ago period.
Loan and lease balances were up 3% year-over-year to $950 billion, while deposits soared 23% to $1.7 trillion, putting the bank’s loan-to-deposit ratio at just 56%. Book value per share rose 5% to $28.33, while tangible book value also added 5% year-over-year to $20.23 per share.
In the coming years, a couple of factors should provide earnings growth for Bank of America. The first one is that the bank’s loan portfolio keeps growing. Bank of America is also focused on minimizing expenses, as evidenced by its low efficiency ratio. If this trend continues, Bank of America’s earnings growth will remain higher than the company’s revenue growth rate. We expect 5% annual EPS growth through 2025.
Bank of America also pays a dividend which currently yields 2.5%. We also view the stock as slightly undervalued, leading to our total expected returns of 8.8% per year through 2025.
Mega Cap Stock #5: UnitedHealth Group (UNH)
UnitedHealth offers global healthcare services to tens of millions of people via a wide array of products. The company has two major reporting segments: UnitedHealth and Optum. The former provides global healthcare benefits to individuals, employers and Medicare/Medicaid beneficiaries, while Optum is a services business that seeks to lower healthcare costs and optimize outcomes for its customers. UnitedHealth produces about $255 billion in revenue annually.
UnitedHealth reported third-quarter earnings on October 15th, with results coming in better than expected. Revenue was up 8% to $65.1 billion, as Premiums were up more than 7% to $50.8 billion, Products revenue was up better than 16% to $8.8 billion, and Services revenue was up nearly 4% to $5.1 billion. Similar to recent quarters, the smaller Optum business led the way in terms of growth, soaring 21% in Q3 to $34.9 billion, as the UnitedHealthcare business was up almost 5% to $50.4 billion.
Net income was down nearly -10% on an adjusted basis to $3.4 billion, and adjusted earnings-per-share came to $3.51, which was down -9.5% year-over-year. Management guided for adjusted earnings-per-share of $16.50 to $16.75 for this year, raising its guidance once again as actual results continue to outperform forecasts. We see forward earnings-per-share growth of 10% annually as UnitedHealth continues to buy back stock and generate strong revenue growth.
UnitedHealth’s competitive advantage is in its gargantuan scale as well as its deeply entrenched customers with high switching costs. Like a utility, health and wellness providers have high switching costs, accruing significant benefits to incumbents like UnitedHealth. It is also quite resistant to recessions as its services are necessities in most cases
We expect approximately 9.4% annual returns going forward, due to 10% expected EPS growth and the 1.5% dividend yield, partially offset by a declining valuation multiple as we view the stock as slightly overvalued right now.
Mega Cap Stock #4: Home Depot (HD)
Home Depot was founded in 1978, and since that time has grown into the leading home improvement retailer with almost 2,300 stores in the U.S., Canada, and Mexico. In all, Home Depot generates annual revenue of approximately $110 billion.
Home Depot reported third-quarter earnings on November 17th. The company recorded third quarter sales of $33.5 billion, a 23.2% increase year-over-year. Comparable sales increased 24.1%, and 24.6% specifically in the U.S. Net earnings of $3.4 billion for the quarter were up 23.9% from $2.8 billion YoY. On a per diluted share basis, $3.18 for the quarter increased 25.7% from the same period a year ago.
Home Depot’s most compelling competitive advantage is its leadership position in the home improvement industry. Not only is demand for home improvement products growing at a high rate in the U.S., but the industry is highly concentrated with just two major operators (Home Depot and Lowe’s) taking the vast majority of market share.
Home Depot has also proven to be extremely resilient to recessions, including the coronavirus pandemic, which has arguably helped Home Depot as consumers spend much more time at home. Home Depot has a projected 2020 dividend payout ratio just above 50%, which indicates a safe dividend.
Home Depot has generated strong earnings growth in the past decade, as it has successfully capitalized on the housing and construction boom that ensued following the Great Recession of 2008-2010. E-commerce is another growth catalyst for Home Depot, as the company has invested heavily to expand its digital footprint.
Home Depot stated that sales leveraging its digital platforms increased approximately 100% last quarter. We see five-year annual earnings growth of 7.0%, consisting of comparable sales in the mid-single digits, a low single-digit tailwind from buybacks, and a steady, boost from operating margin expansion.
The combination of EPS growth, valuation changes, and the 2.2% dividend yield lead to expected returns of 9.5% per year through 2025.
Mega Cap Stock #3: Merck & Co. (MRK)
Merck is one of the largest healthcare companies in the world. Merck manufactures prescription medicines, vaccines, biologic therapies, and animal health products. Merck generates annual revenues of $49+ billion.
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 third-quarter earnings results on 10/27/2020. Revenue increased 1.2% to $12.6 billion, topping estimates by $340 million. Adjusted earnings-per-share increased 15.2% to $1.74 and was $0.31 better than expected. Currency exchange reduced revenue results by 1% for the third quarter. Merck estimates that the COVID-19 pandemic reduced pharmaceutical revenue by $475 million for the quarter and $2.1 billion year-to-date.
Still, Pharmaceutical revenues increased 2% to $11.3 billion. Oncology once again led the way for Merck.
Source: Investor Presentation
Keytruda, which treats cancers such as melanoma that cannot be removed by surgery and non-small cell lung cancer, continues to grow as sales were up 21% to $3.7 billion. U.S. sales were up 24%. Keytruda continues to receive new approvals for treatment in both the U.S. and Japan.
Merck’s HPV vaccine Gardasil had a sales decline of 10% due to weaker demand stemming from school closures in the U.S., though volumes remains robust in China and Europe. Sales for Januvia/Janumet, which treats diabetes and is Merck’s second highest grossing product, improved 1% due to higher demand in international markets even as pricing pressure continues in the U.S.
Animal Health sales improved 9% to $1.2 billion due to higher demand in animal vaccines and parasitic control. Merck has two COVID-19 vaccine trials in place as well as a novel antiviral candidate.
Merck once again raised its guidance for the year. The company expects revenue in a range of $47.6 billion to $48.6 billion from $47.2 billion to $48.7 billion previously. Adjusted earnings-per-share are now expected in a range of $5.91 to $6.01, up from $5.63 to $5.78previously. The midpoint for both ranges is above consensus estimates.
Merck’s key competitive advantage is that it is seeing strong growth rates in key product areas.While generic competition is putting pressure on certain pharmaceuticals, we find Keytruda’s growth rate and peak sales expectations very appealing. We expect 5% annual EPS growth through 2025.
Merck also pays a dividend which yields 3.3%, while we find the stock to be slightly undervalued at the current share price. We estimate total returns to reach nearly 10% per year through 2025.
Mega Cap Stock #2: AT&T Inc.
AT&T is the largest communications company in the world, operating in three distinct business units: AT&T Communications (providing mobile, broadband and video to 100 million U.S. consumers and 3 million businesses); WarnerMedia (including Turner, HBO, Warner Bros. and the Xandr advertising platform); and AT&T Latin America (offering pay-TV and wireless service to 11 countries).
AT&T ranks highly on the list due to its strong business model, high dividend yield, and low valuation. It is also a proven dividend growth stock. AT&T has increased its dividend for over 30 consecutive years, placing it on the exclusive list of Dividend Aristocrats. You can see our full list of Dividend Aristocrats here.
In the 2020 third quarter, AT&T generated revenue of $42.3 billion, along with operating cash flow of $12.1 billion. Among the highlights, AT&T recorded more than 5 million total domestic wireless net adds along with over 1 million postpaid net additions. The company’s postpaid churn was an impressive 0.69% for the quarter.
AT&T still expects free cash flow of at least $26 billion for the full year. This will help the company continue to invest in growth, pay dividends to shareholders, and also pay down debt. AT&T’s net debt-to-EBITDA ratio was ~2.66x at the end of the quarter.
Source: Investor Presentation
AT&T is a colossal business, easily generating profits of $20+ billion annually, but it is not a fast grower. From 2007 through 2019 AT&T grew earnings-per-share by 2.2% per year. While the company is picking up growth opportunities, notably in its recent acquisitions of DirecTV and Time Warner, we recognize the premiums paid and the fact that the company’s legacy businesses are steady or declining. AT&T is optimistic about generating reasonable growth and the payout ratio had been falling, resulting in excess funds to divert toward paying down debt.
Two individual growth catalysts for AT&T are 5G rollout and its recently-launched HBO Max service. AT&T continues to expand 5G to more cities around the country. On June 29th, AT&T announced it had turned on 5G service to 28 additional markets. AT&T now provides access to 5G to parts of 355 U.S. markets, covering more than 120 million people.
On May 27th, AT&T launched streaming platform HBO Max and generated 90,000 mobile downloads on its first day. HBO Max is priced at $15 per month and offers subscribers approximately 10,000 hours of programming. The new platform is a critical step for AT&T to keep up in the streaming wars. As of the third quarter, HBO Max had nearly 29 million subscribers.
Shares of AT&T trade for a 2020 price-to-earnings ratio just above 9, below our fair value P/E of 12. 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 12.9% per year over the next five years. With a mix of growth catalysts, deep value and a very high yield, AT&T is an attractive mega-cap stock.
Mega Cap Stock #1: Pfizer Inc. (PFE)
Pfizer Inc. is a global pharmaceutical company that focuses on prescription drugs and vaccines. Pfizer’s new CEO completed a series of transactions in 2019 significantly altering the company structure and strategy. Pfizer formed the GSK Consumer Healthcare Joint Venture with GlaxoSmithKline plc (GSK), which will include Pfizer’s over-the-counter business. Pfizer owns 32% of the JV.
Pfizer also completed a $11 billion deal acquiring ArrayBioPharma. The spinoff of the Upjohn segment was announced as well. Pfizer’s top products include Eliquis, Ibrance, Prevnar 13, Enbrel (international), Chantix, Sutent, Xtandi, Vyndaqel, Inlyta,and Xeljanz. The company had revenue of $51.8 billion in 2019.
In the 2020 third quarter, revenue declined 4% while adjusted earnings-per-share declined 3%. Biopharma revenue increased 4% operationally last quarter.
Source: Investor Presentation
Pfizer’s current product line is expected to produce top line and bottom line growth out to 2025 as a result of acquisitions and R&D investmnets. Currently, Eliquis (cardiovascular), Ibrance (oncology) and Xlejanz (rheumatoid artacritis) are all posting robust sales growth. New launches of Vyndaqel and Inlyta are growing rapidly as well.
Growth will come from increasing U.S. and international sales for approved indications and extensions. On the other hand, growth is offset by patent expirations and also competition for Enbrel and Prevnar 13. Going forward Pfizer has a strong pipeline in oncology, inflammation & immunology, and rare diseases. We are expecting 6% EPS growth out to 2025. Pfizer also pays a solid 4.2% dividend. In all, we expect 13.8% annual returns through 2025, making Pfizer our top mega-cap stock right now.
Mega cap stocks offer investors access to the largest and generally most profitable companies in the world. The group tends to hold up better during downturns and offer investors steady streams of revenue and earnings.
Many of the stocks on this list offer investors generous dividend yields as well, but all of them have high prospective total returns. These 10 stocks, we believe, collectively offer investors an attractive blend of growth, value and yield.