Large-cap, often referred to as ‘big cap’, refers to a company with a market capitalization value exceeding $10 billion. This terminology abbreviates ’large market capitalization’. Market capitalization is derived by multiplying the number of a company’s outstanding shares by its current stock price per share. Stocks are typically categorized as large-cap, mid-cap, small-cap, or micro-cap.
Key Takeaways
- Large-cap signifies a company with a market cap over $10 billion.
- It stands for ’large market capitalization.’
- Market cap is calculated by multiplying a company’s outstanding shares by the share price.
- Large-cap stocks form a significant portion of the U.S. equity market and often serve as core portfolio holdings.
Understanding Large-Cap Stocks
Large-cap stocks constitute approximately 98.5% of the total U.S. equity market, as demonstrated by the Wilshire 5000 Total Market Index which includes companies with at least $25 million float-adjusted market cap. As of April 30, 2021, this index features over 3,500 stocks representing the entire U.S. equity market.
Leading U.S. Large-Cap Stocks (March 2021):
- Apple (AAPL)
- Saudi Aramco (2222.SR)
- Microsoft (MSFT)
- Amazon (AMZN)
- Alphabet (GOOGL & GOOG)
- Meta (META), formerly Facebook
- Tencent (TME)
- Tesla (TSLA)
- Alibaba Group (BABA)
- Berkshire Hathaway (BRK.A)
Globally, large-cap companies are predominant in leading benchmark indices, including the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite within the U.S. markets.
Characteristics of Large-Cap Stocks:
- Transparent: Large-cap companies are typically transparent, facilitating investors’ access to, and analysis of, public information.
- Dividend payers: These established companies often distribute dividends, benefiting investors preferring income distributions.
- Stable and impactful: Large-caps, often blue-chip companies, have stable revenue and earnings predictable with market movements due to their size. They frequently lead markets through innovation and possess global operations, significantly influencing the broader market.
Market Capitalization Explained
Market capitalization represents a measure of a company’s size and market value. This equity market concept is vital in investment strategies, assessed alongside other factors like price-to-earnings and earnings growth estimates.
How It’s Calculated:
Market capitalization is computed by multiplying the number of outstanding shares by the current share price. For instance, a company with 10 billion shares valued at $10 each will have a market capitalization of $100 billion. Similarly, a company with 100 billion shares trading at $1 per share also reaches a $100 billion market cap.
Issuing publicly traded stock is a primary mechanism for capital raising among public companies. The management of equity shares underscores the importance of outstanding shares in capital processes.
Categories of Market Capitalization
Companies are typically categorized by market capitalization into large-cap, mid-cap, and small-cap categories:
- Large-cap: Companies with over $10 billion in market capitalization.
- Mid-cap: Companies with market capitalizations between $2 billion and $10 billion.
- Small-cap: Companies with less than $2 billion in market capitalization.
Additional segments include mega-cap (over $200 billion) and micro-cap (below $300 million) companies. Large-cap companies usually experience broader market exposure and greater trading liquidity.
Investing in Large-Cap Stocks
Investors often diversify their portfolios across different industry sectors and various market caps. Large-cap stocks provide a sense of security and stability due to their size. While not offering the same growth opportunities as mid-cap and small-cap alternatives, they are innovative leaders—substantially driving value through significant market initiatives and groundbreaking solutions.
Investment Strategy:
Investing in large-cap companies is regularly a core element of long-term investment planning due to their stability, transparency, and reliable dividend payments. Financial advisors advocate for diversified portfolios including small-cap, mid-cap, and large-cap stocks to align with risk tolerance and investment horizons.
Related Terms: Mid-cap stocks, Small-cap stocks, Market depth, Dividend stocks.
References
- Financial Industry Regulatory Authority, Inc. “Market Cap, Explained”.
- FT Wilshire. “Wilshire Mutual Funds Schedule of Investments, September 30, 2021”.
- FT Wilshire. “Wilshire Mutual Funds Summary Prospectus, April 30, 2021: Wilshire 5000 Index Fund”, Page 2.
- FT Wilshire. “FT Wilshire 5000 Index: Index Methodology”, Page 1.
- PricewaterhouseCoopers. “Global Top 100 Companies by Market Capitalization March 2021”, Download PDF, Page 22.
- Nasdaq. “What Is Market Capitalization, and What Can It Reveal?”
