Topic: Value Stocks

Invest in large-cap value stocks for portfolio gains and less volatility

Put the best large-cap value stocks in your portfolio to manage volatility more successfully.

Market capitalization, or “market cap,” is the total value of all of a company’s outstanding shares. Large-cap stocks are generally stocks of well-established companies with a market “cap” of billions of dollars.

To add more strength to your large cap selections, make sure some of them are value stocks. 

The best large-cap value stocks have the potential for solid gains and are generally less volatile than small-cap stocks. The best of them also usually rebound from downturns better than other stocks.

Three well-known large cap stocks are Proctor & Gamble, Disney and AT&T.


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How to find the best large-cap value stocks

One of the sweetest and most profitable pleasures of successful investing is to buy high-quality “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to their sales, earnings or assets), then hold on to them as mainstream investors recognize the value and push up the share price.

The best large-cap value stocks are stocks trading lower than their financial fundamentals suggest. They are perceived as undervalued and have the potential to rise. Generally speaking, the climb is steadier for value stocks. The only other way for it to emerge into the market like a growth stock is for it to be more innovative with new products or services.

Here are 3 ways you can spot good investments in large-capitalization companies:

  1. Look beyond market cap to judge a company’s investment quality. The very best large-cap stocks have a consistent history of sales and earnings, as well as a strong hold on a growing market and a unique product or service that cuts its competition
  2. To tell good large cap companies from bad, you have to look at a variety of factors much subtler than market cap. They include earnings, dividends, the strength of the balance sheet, the strength of the company’s products, customer loyalty or fickleness, and so on.
  3. A large-cap stock may have a high or low price per share. Remember, a company’s market cap is equal to the total number of shares outstanding multiplied by the price per share. However, a large-cap stock can have a low price per share if it has many shares outstanding.

To succeed in today’s volatile markets, you’ll need to own shares in a variety of companies of varying sizes. But here’s one thing your best choices will have in common: each will be about the right size to succeed in the business it is in.

For example, 3M Company (New York symbol MMM) makes over 55,000 consumer and industrial products, including Post-it notes, Scotch tape, Scotch-Brite cleaning products, Scotchguard fabric protection and Thinsulate insulation. 3M is an example of a large-cap stock, and a top-quality large-cap stock.

The top ETFs hold the best large-cap value stocks

We still feel that investors will profit the most with a well-balanced portfolio of high-quality individual stocks, but ETFs can also play a role in a portfolio. Here’s a large-cap value ETF we like:

The Vanguard Value ETF, (Symbol VTV on New York; www.vanguard.com) focuses on large-cap value stocks, using ratios like the following to identify value: book value to price, forward earnings (estimates) to price, historic earnings to price, dividend to price, and sales to price. It then weights the stocks that meet its criteria by market capitalization. This weighting approach tilts the portfolio toward the largest value stocks.

The ETF’s top holdings are Johnson & Johnson, Berkshire Hathaway Inc., Procter & Gamble Co., JPMorgan Chase & Co., UnitedHealth Group Inc., Intel Corp., Verizon Communications, AT&T, Walt Disney Co. and Merck & Co.

The Vanguard Value ETF has a high proportion of healthcare and financial stocks, which tend to be less volatile on average.

Use our three-part Successful Investor approach to select stocks—including the best large-cap value stocks

You will have a strong selection of top blue-chip stocks in your portfolio when you follow our three-part investing program.

These three safeguards will tend to limit your losses at the worst of times. But over long periods, they also let you profit nearly automatically.

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

When searching for value stock picks, do you look for small caps or large-caps?

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