High market cap investing is not as easy as picking the biggest stock and assuming it will do well. In fact, there are some investors that choose specifically to not invest in large cap stocks. These investors argue that smaller cap companies have greater returns and higher growth. They aver that largest companies will not get that much bigger because of market saturation, the company's ability to meet a larger demand and legalities that prevent companies from becoming too big. However, while large cap companies may not provide as much potential for growth as their smaller counterparts, they tend to be more stable, offering conservative or risk-averse investors a return greater than many other conservative investments like a savings account or. At least, they can when investors get them at a good price.
When investors put their money in large cap stocks, first and foremost, they need to make sure they are getting the stock at a good price. There are two measures that can help determine whether a stock is at a good price. The first is the forward P/E ratio, that is how a company is priced relative to its future earnings. The next is the relative strength index [RSI]. A value over 50 indicates that the company's gains outweigh its losses. Here is a list of companies that fit those parameters. Specifically, they are large cap US companies with forward P/E ratios of less than 15 and RSIs over 50.
American International Group, Inc. (AIG) is a property and casualty insurance company with a market cap of $47.39 billion. The company is priced at 9.60 times its forward earnings and has a RSI of 57.86. AIG recently traded at $24.95 a share. It has a one year target estimate of $27.25 a share, although some analysts predict the stock will reach $32.00. On January 13, Stifel Nicolaus initiated a recommendation of hold for the company. In comparison to its nearest rival, Allianz SE (AZSEY.PK), AIG has the larger market cap, compared to AZSEY's $44.67 billion, and the lower P/E ratio (to AZSEY's 11.27). AIG also has a higher earnings per share (EPS), coming in at 4.41 versus AZSEY's 0.88.
Bank of America Corp. (BAC) is a banking and credit services chain with a market cap of $67.07 billion. The company is priced at 7.34 times its forward earnings and has a RSI of 64.01. BAC recently traded at $6.61 a share. It has a one year target estimate of $8.98 a share, although some analysts say the stock could reach $14.50 in the next year. BAC is smaller than its nearest competitors - Citigroup (C) for instance has a market cap of $89.87 billion - but it has roughly the same quarterly growth (17.60% vs. C's 18.00%) and a greater earnings growth estimate. BAC's earnings are expected to grow at 15.50% per annum over the next five years, whereas C's earnings are expected to grow 11.73% a year over the next five.
CVS Caremark Corp. (CVS) is a drug store chain with a market cap of $54.86 billion. The company is priced at 13.01 times its forward earnings and has a RSI of 68.29. CVS recently traded at $42.15 a share. Analysts predict CVS's share price could go as high as $50 in the next year. On November 7, research firm RBC Capital Markets upgraded CVS from sector perform to outperform, indicating the firm has high hopes for CVS - and with good reason. CVS is twice the size of Walgreens (WAG), its nearest competitor and CVS boasts quarterly revenue growth more than twice that of WAG's (12.50% vs. WAG's 4.70%). CVS has a dividend yield of 1.5%. CVS is also popular with Warren Buffett's Berkshire Hathaway.
Ford Motor Co. (F) is a major auto manufacturing company with a market cap of $45.75 billion. The company is priced at 7.62 times its forward earnings and has a RSI of 67.60. F recently traded at $12.04 a share. It has a one-year target estimate of $15.69 although some analysts predict the stock will reach $22.00 a share in the next 12 months. F has a larger market cap than General Motors (GM)'s $38.00 billion and higher quarterly growth (10.60% vs. GM's 7.80%).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
