What are common advantages of investing in large cap stocks?

Investing, Stocks
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July 2017
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Thank you for your question it is certainly a good one. You may have read or heard about market capitalization (also market cap), which is a the monetary value of a company. It is a simple calculation that involves taking the number outstanding shares, or the number of shares that are available to trade on the stock market, multiplied by the price of the stock. (As of this writing, Apple (AAPL) is the largest company from a market cap standpoint, but I only mention this as an example not as a recommendation.)

 

Since large cap stock are exactly that, LARGE, there are some advantages of being a large company:

 

  • They are able to weather market turbulence easier due to their size – it’s much harder for a $10 billion company to go out of business than it is a $10 million dollar company, although it can happen
  • They are typically diverse, as they usually generate revenue from more than one source
  • Sometimes they are dividend payers and a stock holder of the company can receive a dividend payment
  • There are instances where they repurchase their own stock (e.g. AAPL uses their funds to purchase their stock in the open market)
    • It also can increase your proportionate ownership of the company (simply e.g. – 100 shares outstanding for a company, you own ten, or 10% of the entire company. The company repurchases 10 shares in the open market. Now you own 11% of the company without buying or selling)
    • This tactic offsets shareholder dilution from options issued corporate executives (dilution this is the exact opposite of the above example above)
  • Wall Street firms (Goldman Sachs, Wells Fargo, Deutsche Bank, Credit Suisse, Morgan Stanley, JP Morgan, etc..) will typically have more analysts covering these companies, as compared to smaller companies. As a shareholder you can read research reports and get news from these firms much more timely than smaller firms
  • When the company releases news it is usually released via an official channel (press release) and disseminated to the public equally

 

Please note all of these statements are generalizations as each large cap company is unique and may or may not do some of the things mentioned. The companies named above are purely listed as examples and should not be viewed as investment recommendations.

 

If you need any assistance, please do not hesitate to reach out to me.

 

Best regards,

Robert J Leiphart, CFP®

http://www.rbcapitalmanagement.com/robert-leiphart-cfp/

 

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