What are large-cap stocks?

What are large-cap stocks?

Beginner

1st September, 10:14
Updated: 23rd September, 07:20

Looking to own stable stocks in large, well-known companies?

Investing in large-cap stocks could be your best bet. In this lesson, you’ll learn what large-cap stocks are, their key characteristics, and where you can buy them. You’ll also find examples of some large-cap stocks that could make great additions to your portfolio.

What are large-cap stocks?

Large-cap stocks are stocks with market capitalisations exceeding $10 billion. Because of their size and value, large-cap stocks tend to be very well known companies. Name your favourite large brand and the odds are that the company’s stock is a large-cap.

Why do investors look for large-cap stocks?

Primarily, investors look for stability when considering large-cap stocks. We’ve seen in 2020 how volatile the stock market can be in the face of bad news. All else being equal, large-cap stocks tend to hold up better during tumultuous periods for the market, because investors often follow a “flight to quality” pattern in those instances, piling money into names they know while riding out the storm. It is also worth saying that, in addition to their relative stability, many large-cap stocks offer the potential for more growth – as we’ll see with some of the stocks we profile below.

What are the defining characteristics of large-cap stocks?

1) Large market capitalisation

Large-cap stocks can fall under numerous different stock type categories. The only immutable characteristic it has is the size of its market capitalisation, with $10 billion or more the established threshold for large-cap stocks. 

2) They have name recognition

Coca-Cola, McDonald’s, Microsoft… name a well-known company, and it’s extremely likely that their stock is a large-cap stock. Companies with established brands have a leg up on the competition when it comes to building and sustaining revenue and earnings growth – both important traits that often fuel stock price gains.

3) Stability

Large-cap stocks tend to trade in higher volume than mid- and small-cap stocks, and that higher liquidity tends to make them less volatile. Since these companies are also large and well established, they’re less likely to be affected by a single negative news item.

4) There is lots of information available about them

Because large-cap stocks tend to have longer and more visible track records, you can easily pick up a lot of information about their financial health. From years of financial reports to the many analysts that cover them, there’s plenty of information out there to help you figure out if they’re worth the investment.

Here are some examples

If you’re looking to sure up your investments with some large-cap stocks, here are some companies it’s worth considering.

1) Nike (NKE)

The footwear and sports apparel giant’s stock has a $127 billion market cap. Nike’s stock has shown unusual strength despite the broad market’s downturn during the COVID-19 pandemic, and as of early June 2020 sat just pennies short of its all-time trading high.

2) Alphabet (GOOGL)

Google’s parent company is an absolute giant, whether you measure it by Alphabet’s market share compared to other Internet services, its earnings and revenue growth, or by market cap ($982 billion). Google’s stock had consolidated for three and a half months as of early June, setting up for a potential breakout to new high ground. 

3) Apple (AAPL)

Technology juggernaut Apple shrugged off the effects of the coronavirus-triggered market correction and surged to a new all-time high in early June 2020. Apple’s stock owns the highest market cap among all US companies’ stocks at $1.44 trillion. 

4) BlackRock (BLK)

BlackRock is a U.S.-based multinational investment company, with $7.4 trillion in assets under management as of year-end 2019. The stock sports a market cap of $85.9 billion and is in good position to rise higher as the global economy recovers.

How do I find large-cap stocks?

There are lots of investment websites that offer screening tools which let you search for large-cap stocks based on any fundamental or technical parameters you like. You can also find the best large-cap stocks right here, with our lists of top-performing large-cap stocks published every month on this website.

Visit this guide for more information on how to find large-cap stocks > 

Ok, now you have a better understanding of large-cap stocks, it’s time to keep learning. Check out our next lesson, on cyclical stocks.

By Jonah Keri
Jonah Keri is a trader and analyst who spent 11 years at Investor's Business Daily covering the markets. He now writes about stocks, cryptocurrencies, and other investments for Invezz and about emerging technologies for private clients.
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