Amidst this economic downturn, investors are consistently looking to invest in companies with the ability to “weather” the storm. A frequently mentioned characteristic of the companies deemed qualified to handle the current recession are size, particularly market cap. But how has size held up thus far in this market?
The following is a snapshot of the largest stocks, by market cap, in each sector of the S&P 500 (SPY). Included in this synopsis is their performance since the beginning of 2008, and the current state of each company’s operations. As a note, performance figures were calculated as of the market close on Monday March 23. Furthermore, for a relative perspective, the S&P 500 returned -39.58% in 2008.
McDonald’s Corporation (MCD)
- 2008 Consumer Discretionary Sector Return: -48.10%
- 2008 MCD Return: 8.58%
- 2009 MCD Return: -13.66%
- Market Cap: $61.43 Billion
McDonald’s was a rare gem in the Consumer Discretionary sector in 2008, outperforming its peer by over 55%. With its global brand presence and the benefits of the “trade-down” effect, McDonalds was able to put up good numbers in 2008, while providing returns for its investors. Looking forward, McDonald's has lagged the broader index on up days in the market and has seen its performance revert in 2009. While it will continue to be an outstanding long-term investment, look for McDonald's to struggle relative in a bull market.
Wal-Mart Stores Inc. (WMT)
- 2008 Consumer Staples Sector Return: -16.93%
- 2008 WMT Return: 20%
- 2009 WMT Return: -11.05%
- Market Cap: $202 Billion
Along with McDonald's, Wal-Mart proved to be suited well for a recessionary environment, primarily due to the “trade-down” effect. As consumer spending power continues to dwindle, people will look to get their essentials at the lowest cost. That is exactly what Wal-Mart provides. Also like McDonald's, Wal-Mart has seen a bit of a reversion in 2009 on the heels of its 2008 performance. However, do not look for Wal-Mart to lag much in a bull market, as it continues to grab customer share and expand its business. The company is truly the standard in consumer goods.
Exxon Mobil (XOM)
- 2008 Energy Sector Return: -35.85%
- 2008 XOM Return: -13.11%
- 2009 XOM Return: -16.80%
- Market Cap: $348.53 Billion
Exxon Mobil, with an astounding market cap of $348.53 billion, has the size and scope to “weather” this economy, proving this as they managed the severe volatility in the commodities market in the second half of 2008. Putting the company’s business operations aside, Exxon has a cool $38 billion in cash which should keep them out of trouble any time soon. For perspective, based on market cap, Exxon has the means to buy the likes of Nike (NKE), Raytheon (RTN), or Citigroup (C) with the company’s pile of cash. What might they actually do with this cash? Check out this recent article for some possible ideas.
JP Morgan Chase (JPM)
- 2008 Financials Sector Return: -69.90%
- 2008 JPM Return: -25.14%
- 2009 JPM Return: -25.68%
- Market Cap: $108.45 Billion
It goes without saying, but obviously JP Morgan has had its struggles through the subprime mortgage meltdown and the current financial crisis. However, relatively speaking, Jamie Dimon and his company’s “fortress” balance sheet have held up and it appears JPMorgan is positioned to emerge from this crisis as the leading commercial bank. While no one can predict where the banking sector will stand going forward, expect JPMorgan to have a substantial impact in some way, shape, or form.
Johnson & Johnson (JNJ)
- 2008 Healthcare Sector Return: -25.50%
- 2008 JNJ Return: - 7.71%
- 2009 JNJ Return: -12.93%
- Market Cap: $147.22 Billion
After a solid 2008, Johnson & Johnson seems to be in a bit of a rut thus far in 2009. The Company issued its 2009 guidance in January, expecting EPS of $4.45 to $4.55, while analysts’ expectations were at $4.61. To complicate matters, the Healthcare sector appears to be on the verge of a major reform by President Barack Obama. These political uncertainties coupled with the company’s own hesitant remarks have some investors wary. But with a consumer division that makes primarily inelastic medical products to fall back on, Johnson & Johnson will manage the unstable environment better than the majority of big pharma.
General Electric (GE)
- 2008 Industrials Sector Return: -40.47%
- 2008 GE Return: -53.94%
- 2009 GE Return: -39.39%
- Market Cap: $110.15 Billion
General Electric is in the beginning stages of completely rebuilding itself and reconstructing its business model. In 2008, the industrial conglomerate lost over half its value, primarily due to losses stemming from the toxic balance sheet of GE Capital, the company’s financial subsidiary. GE Capital currently accounts for approximately 35% of revenue. In 2009, GE has dealt with credit downgrades by S&P and Moody’s, and a stock price under $6, along with the company cutting its dividend. However, the worst could be over for GE. Check out this recent article about the potential prospects of GE.
Microsoft Corporation (MSFT)
- 2008 IT Sector Return: -48.65%
- 2008 MSFT Return: -44.38%
- 2009 MSFT Return: -11.65%
- Market Cap: $162.96 Billion
Microsoft’s performance has mirrored the IT sector's since the beginning of 2008, which many would consider disappointing considering the company’s run earlier this decade. Lately it seems Microsoft has been standing still, pushing a lackluster product in Vista and failing to acquire Yahoo! (YHOO). The release of Windows 7, scheduled for the end of this year, now comes with a lot of pressure as the innovative image of Microsoft is at risk. Despite recent squanders, it is worth noting that the company still has $20 billion in cash to play with. Look here for some ideas Microsoft’s management could consider, considering their large cash pile.
Monsanto Company (MON)
- 2008 Materials Sector Return: -40.23%
- 2008 MON Return: -36.54%
- 2009 MON Return: 14.59%
- Market Cap: $46.46 Billion
Monsanto Company has been relatively strong and has been an excellent investment thus far in 2009, returning almost 15%. In January, the company reported earnings of $0.98 a share compared to analysts’ expectations of $0.60 a share. Earnings were fueled by a record 29% increase in sales in Latin America. Overall, Monsanto traded with the general market in 2008 and has proven worthy to handle a recessionary environment in 2009. This best of breed AG company is one that will continue to thrive going forward.
AT&T Inc. (T)
- 2008 Telecom Sector Return: -33.15%
- 2008 T Return: -28.05%
- 2009 T Return: -9.83%
- Market Cap: $158.65 Billion
This telecommunications giant has had its ups and downs in the last year, staying relatively in line with the sector that it comprises over 50% of. Looking forward into 2009, the company expects single digit revenue growth through the company’s wireless and IP data services. In addition, AT&T still views the iPhone and the 3G networks as a maturing and growing revenue source. Although some of the company’s business lines could be considered discretionary, look for AT&T to maintain itself as the leading wireless provider and to get through the current recession alive and well.
Exelon Corporation (EXC)
- 2008 Utilities Sector Return: -32.49%
- 2008 EXC Return: -29.88%
- 2009 EXC Return: -20.57%
- Market Cap: $30.08 Billion
If there is a sector where market cap has the least impact, it is probably the utilities sector. That being said, its largest company, Exelon Corporation, still does benefit from its size and scope. In addition to being the largest utilities company by market cap, Exelon also boasts one of the industry’s best balance sheets, having the largest credit facility in the sector. However, currently Exelon is caught up in a hostile bid for NRG Energy (NRG), which has had a substantial impact on the stock at the end of 2008 into 2009. NRG has repeatedly denied the deal on concerns that the deal is too low and the financing is not adequate. It will be hard to recommend a buy for Exelon until the status of the takeover bid is transparent or resolved.
Disclosure: The Fund the author is associated with is long MCD, WMT, XOM, JPM, JNJ, GE, T, NKE, RTN, and is looking to be long MON in the near future.