Eyeing Market Cap Trends Useful When Assessing A Stock

Includes: AAPL, C, CHL, GE, MSFT, PTR, T, WMT, XOM
by: Brian Nichols

The market capitalization is a measure that reflects a company's total outstanding shares multiplied by its stock price. I view a market cap as a number that the market believes a stock is worth. The value that investors place on a stock can go up or down if the company announces a surprise in earnings, an update on a product, or changes in guidance. Investors may even decide to lower the value of a company if there is fear of another recession, or problems in another country, or even if the president says something we do not like.

The total value of a stock, or market cap, changes on a daily basis, therefore it's not the most reliable indicator to determine the future of a stock. However, trends with a company's market cap can be useful in determining its overall direction as a company. Below is a look at the top 5 companies over the last 10 years and changes in performance. Along with the 3 charts of market cap leaders, there are 5 topics or observations that I view as important that can be found by observing the trends of these stocks.

Companies By Market Capitalization on September 14 2011
Company Ticker Sector Market Value in millions
Apple, Inc AAPL Technology 356,580
Exxon Mobil XOM Energy 348,370
PetroChina Company Limited PTR Energy 221,710
Microsoft Corporation MSFT Technology 218,170
China Mobile Ltd. CHL Services 201,650

Companies By Market Capitalization on March 31 2007
Company Ticker Sector Market Value in Millions
Exxon Mobil XOM Energy 429,567
General Electric GE Conglomerate 363,611
Microsoft MSFT Technology 272,912
CitiGroup C Financial 252,857
AT&T T Services 246,206

Companies By Market Capitalization on March 31 2002
Company Ticker Sector Market Value in Millions
General Electric GE Conglomerate 372,089
Microsoft Corporation MSFT Technology 326,639
Exxon Mobil XOM Energy 299,820
Wal-Mart WMT Services 273,220
CitiGroup C Financial 255,299

  1. While other companies have changed positions Exxon Mobil has remained consistent for nearly 10 years. Exxon Mobil has proven itself to be one of the best long-term investments to return solid gains during this period of nearly 10 years. An investor who purchased $10,000 worth of XOM stock in January 2002 probably paid $40 a share. At $40 a share an investor would own 250 shares, which would be worth nearly $18,000 today. However, the company offers a dividend with a current yield of 2.61. The company has consistently increased its dividend during this period of 10 years, with a large portion during the recession of 2007 to early 2009. With dividends a shareholder would own roughly 308 shares, if dividends were reinvested, the return would be more than $22,000. Exxon is a long-term hold that has proven to be consistent over a period of more than a decade.
  2. Microsoft still holds a position as one of the largest companies in the market but many believe the company is losing its edge. Microsoft has a long track record of success but has consistently lost value over the last 10 years, which I believe is a result of the Apple's emergence and consumers shifting from computers. The stock has a yield of 2.46, which has doubled over the last 6 years. However I am bearish regarding the company's future as a top 5 stock, by market cap, because it has lost value over a consistent period of time. The company may perfect cloud computing and develop a successful tablet, smartphone, or some other device that once again transcends the industry. But competition is at an all time high and I believe the torch has been passed and it's another company's time to control the technology market and even though Microsoft will remain relevant and profitable for at least 10 years, I don't believe the company has the same edge that it had at one point in its history.
  3. Apple has become the new Microsoft with its iOS technology and innovating products resulting in growth at an incredible rate. A $10,000 initial investment was used as an example for Exxon, therefore I will use it once again for Apple. A $10,000 investment in January of 2002 would be worth more than $350,000. For a long-term investment I would say that Apple is the best for both past performance and future outlook. The company's iPhone and iPad products are by far the most popular in the line of smartphones and tablets. Apple is expected to begin selling its new iPhone 5 in the near future and most expect a new iPod that could be in the immediate future. I believe Apple can continue selling new models of these products for several years with the company continuing to innovate and keep its edge. The Apple emergence has brought a new level of success for other companies that benefit from its designs and concepts such as Google (NASDAQ:GOOG), HTC, Motorolla (NYSE:MMI), etc. But in the process companies such as Microsoft, Nokia (NYSE:NOK), and Research in Motion (RIMM) have struggled to create a product that compares in performance causing a pessimistic view surrounding the companies. I believe that Apple is innovating and transcendent enough to hold the top spot in technology for quite some time. But unlike large oil companies or large retail companies the technology sector can change with one exceptional product and I believe that Apple has that product for the next 5 years, but it will be interesting to see if Apple can maintain over a period of 10 more years, which has been very difficult in the competitive world of technology.
  4. General Electric has fallen from the number 1 company by market cap in 2002 to not being on the list in 2011. The company's revenue has fallen by more than $30 billion over the last 3 years and its income has fallen by more than 30% during the same period. The company has shed more than $45 billion in assets and trades with a very high level of debt. Despite these issues the company is still very large with a market cap of more than $160 billion. GE has increased profit margins with higher net income on lower revenue which means the company is operating more efficiently. I believe the stock is fairly priced compared with it being overvalued during its reign as the top company, and compared to income. The company has a strong presence in the financial industry. It has naturally experienced trouble as a result of the financial crisis. It operates in several segments and although it will be a recovery process, a 3.89 yield will give investors a sense of relief during this time of uncertainty. I suggest strong due diligence with General Electric. It trades 64% more volatile than the market, and although I believe it will grow, there are risks associated with its financial exposure to its various segments. The company was heavily affected by the recession and I believe the chance of it regaining a spot with the top 5 stocks by market cap is slim to none. But General Electric does not need to be the top company in the market - it simply needs to lower debt, continue improving margins, and continue building on the success that Jack Welch built during his tenure, and I believe that investors would be satisfied.
  5. Chinese companies have emerged over the last several years, becoming more dominant in the U.S. markets. Companies such as Petro China (NYSE:PTR) and China Mobile (NYSE:CHL) have replaced the likes of Walmart (NYSE:WMT), IBM, and AT&T (NYSE:T)with the largest market caps of stocks being traded in American markets. I believe this shows the strength of the emerging markets and its relevance compared with the United States. Chinese stocks have come under heavy scrutiny as of late with several accounting issues, falsifying information, etc. As a result investors have become very skeptical of investing in Chinese companies. I believe the Chinese market will grow as it recovers and that it could produce several large and powerful companies. Yet because of its recent history an extra amount of due diligence is required, to the extreme, to be sure of the stock and its success. I am a strong supporter of the growing Chinese market and the charts above show the level of growth that can take place. I expect several additional stocks to experience a large amount of growth over the next several years. Considering that China has 2 stocks in the top 5, with high market capitalization, that were not on the list 4 years ago, I would say it's a good indication that certain markets in China make good long-term investments.

All numbers regarding previous market capitalizations during previous years were obtained from Financial Times Global 500, which can also be viewed without registration on Wikipedia's List of Corporations by Market Capitalization.

Disclosure: I am long T.

Disclosure: As with any investment due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy.

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