2 Large Cap Stocks To Buy Now For Stable Growth In 2013

Includes: MSFT, YHOO
by: Cris Frangold

With the still frequent volatility of the market, many investors are asking whether it's worth hanging on to large cap holdings in lieu of trading them in for other options that may provide more upside potential without such a long agonizing wait for signs of growth. Yet, it is oftentimes large caps that can show more consistency in both their earnings and growth.

In this article, I will discuss why large caps are still a great way to achieve growth in both the short and long-term, and why owning shares of Microsoft and Yahoo will provide investors with a great opportunity in which to do so.

Is Yahoo Really Something to Cheer About?

While Yahoo (NASDAQ:YHOO) traces its beginnings to less than two decades ago, the company's stock market value currently stands at over $19 billion - of which over $14 billion is in company assets and cash.

One of Yahoo's more valuable assets consists of a large stake in the Chinese e-commerce group, Alibaba - which could bring as much as $14 billion itself if spun off from its parent company. In fact, Yahoo is currently in talks to sell roughly half of its stake in Alibaba - possibly even by year end 2012.

That being said, Yahoo's core business has actually been struggling for several years - especially when compared to rivals such as Google and Facebook. Yahoo's 2011 annual revenue fell below those of six years prior. Yet, although Yahoo's news may not all be bright, the company did report a fractional revenue increase for the second quarter of 2012 - its second consecutive increase following eight prior quarters of declines.

This, along with other factors such as Wall Street's projection for Yahoo to generate in excess of $900 million in free cash in each of the next three years, could quite possibly mean that this company's shares have the potential provide extraordinary value for investors.

The real key here, though, is to not directly compare Yahoo with the likes of Facebook and Google - and just because the company is currently somewhat unpopular in comparison does not mean that there isn't still great potential value to be had with its shares. Although Yahoo doesn't offer a dividend, with a P/E ratio of just over 18, the company's shares are estimated to rise by more than 15% over the next 12 months.

Adding Microsoft to the Mix

Although in 2008 Yahoo declined a $45 billion buyout offer from Microsoft (NASDAQ:MSFT), the mammoth tech company founded by Bill Gates could also offer a nice value to its investors as well. First, as with many other large caps, Microsoft offers a comfortable dividend yield that is currently in excess of 3%.

With a market cap of just under $250 billion, Microsoft is one of the largest technology companies on the planet. The firm brings in a substantial amount of free cash flow - roughly $20 billion - on an annual basis, which could signal the company to raise its dividend regularly. Given this, Microsoft could quite possibly represent a great long-term holding.

While many investors have shied away from Microsoft over the past few years, the company could be poised for a nice boost in sales - especially as customers begin to again make use of the company's products such as Microsoft Office that are synced and allowing them to utilize more unified systems.

With the upcoming release of Microsoft's Windows 8, a successful launch could create nice gains for the company's investors. And, while not all of Microsoft's product launches have been met with positive accolades, those that are have the potential to really increase the company's value.

Microsoft can also attribute itself to numerous smaller product successes as well. For example, other programs such as The Microsoft Test Designer - an easy to use platform for teachers, administrators, and others in the education niche to quickly create exams and other performance testing and learning aids for students - have sparked other successful outside entities like TestDesigner.com with a library containing over 50,000 questions across 300+ different topics.

Investors who follow trading strategies such as the "Dogs of the Dow" have also been able to find value with shares of Microsoft. In fact, the company is ranked 5th on the list of top ten "Dow Dog" stocks that could be a winner for investors in 2013.

Microsoft is currently bringing earnings per share of 2.00 and its shares represent a P/E ratio that is just shy of 15. The company's shares alone are estimated to rise nearly 20% over the next 12 months - a hefty potential gain for such a large cap company.

The Bottom Line

While there are numerous potential values in the market today, I feel that going with strong and steady large caps can truly represent a number of positives for investors. Because shares of these firms don't tend to bounce around wildly, investors can typically rest easy while hanging on for the long haul.

With today's technology-driven world, it only makes sense that companies that can help in simplifying things for consumers will remain in the winner's circle - and Microsoft may be able to hit the target squarely with a successful launch of Windows 8.

Yahoo could also prove to be a winner - yet this is more for its possible value proposition at the present time. By selling off some of its valuable assets, this company could quite possibly infuse itself with even more cash - and if revenue continues to grow as it has over the past two quarters, I think that more investors will take notice of these shares as well.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.