The biggest stocks aren’t necessarily the absolute best stocks on the market … but you don’t get to be one of the largest publicly traded companies on the planet without doing something very, very right.
Indeed, take your pick of the biggest U.S. stocks by market capitalization, and there isn’t a dud in the group. Total return from a concentrated portfolio of the biggest stocks would probably not disappoint over the long haul.
That said, every company has its challenges, and every stock faces headwinds eventually.
Just have a look at General Electric Company (NYSE:GE), the only remaining original member of the Dow Jones Industrial Average. The conglomerate used to be No. 1 for market cap. Then it went from being one of the most admired companies and best stocks of the 1990s to nearly imploding during the financial crisis. GE still is one of the biggest stocks, but few would put it on a “best stocks” list anymore.
A number of mega-caps face some daunting macroeconomic or secular challenges. Furthermore, they’re mature, and so massive that growth has naturally slowed. After all, it’s much easier for a small company to grow rapidly than a large one.
Even the biggest stocks with weakest recent performance or lowest growth prospects are cash-generating machines. Whether that means these names can be market-beaters is another question. Bigger is sometimes better, but it’s not necessarily best:
#10: Facebook Inc (FB)
FB Market Cap: $236 billion
Facebook Inc (NASDAQ:FB) went public less than three years ago and already it has cracked the top 10 for biggest stocks.
And because it’s also one of the best stocks, it won’t stay stuck at the bottom of this list for too long.
Facebook didn’t get out of the IPO gate without stumbling — the stock was a dud for the first year — but since then, it has been on fire. Everybody’s favorite tech stock Apple Inc. (NASDAQ:AAPL) has doubled in the last couple of years, but Facebook has more than tripled. More impressive is that its torrid growth rate promises a lot more upside to come.
Revenue growth appears to be decelerating, which means shares will likely come under pressure from multiple compression, but the rate is still pretty stupendous. The top-line is forecast to increase 37% this year off a base of $12 billion.
Facebook also has stopped much of its experimenting and instead is investing in ways to keep its revenue growth at lofty levels.
#9: General Electric Company (GE)
GE Market Cap: $254 billion
At one time, the biggest stock General Electric Company (NYSE:GE) won’t even be able to claim the No. 9 spot for that much longer. It’s a slow-growth conglomerate in an age when conglomerates are anathema.
Worse still, the main engine of its outsized growth in the past — financial services — isn’t the same business since the financial crisis. Indeed, GE is purposely making the company less reliant on its financial division.
Add it up and you have a long-time laggard with more underperformance to come.
True, shares look cheap, but they’re cheap for a reason. Revenue and earnings growth are nonexistent to paltry. And although past performance isn’t indicative of future returns, get a load of this: GE stock still is 35% below its pre-crash peak.
GE is supposed to be a widows-and-orphans stock, but all its done over the last 10 years is put them in the poor house.
#8: Wal-Mart Stores, Inc. (WMT)
WMT Market Cap: $264 billion
Wal-Mart Stores, Inc. (NYSE:WMT) was a monster in the 1990s, but spent the next decade — and then some — as essentially dead money. Shares have picked up in the last three years, but they’ve still offered little more than opportunity cost.
The law of large numbers works against WMT, as does its failure in some big overseas markets. Not everyone in the world is swayed by little more than always low prices. Bad publicity, heightened competition and an increasing number of shoppers shunning big box retailers haven’t helped either.
WMT is the world’s biggest retailer and one of the biggest stocks, but it hardly looks like one of the best stocks. Not when revenue growth is almost nonexistent and the long-term growth forecast stands at less than 5%.
Moreover, at 16 times forward earnings, WMT appears more than fully valued.
#7: Johnson & Johnson (JNJ)
JNJ Market Cap: $281 billion
Healthcare giant Johnson & Johnson (NYSE:JNJ) looked like it was one of the best stocks a decade ago when it was one of Berkshire Hathaway Inc.’s (NYSE:BRK.A, NYSE:BRK.B) biggest stakes. But Warren Buffett gradually sold the JNJ holding and exited it entirely a few years back.
When Warren Buffett gets out, you know there’s something wrong with a stock’s long-term prospects.
One criticism of JNJ is that it’s too big to grow or manage, and is destined to be split into three companies. Furthermore, the pharmaceutical business has become a bigger part of JNJ’s top line, and that’s an industry that’s always facing patent expirations on blockbuster drugs and regulatory risk on new ones.
JNJ has been lagging the broader market for years and that doesn’t look to change anytime soon. Johnson & Johnson may be one of the biggest companies out there, but it doesn’t look like one of the best stocks to hold.
#6: Wells Fargo & Co (WFC)
WFC Market Cap: $285 billion
Sure, JPMorgan Chase & Co. (NYSE:JPM) gets all the glory for being the nation’s biggest bank by assets, but it’s not the biggest bank stock by a wide margin.
That honor goes to Wells Fargo & Co (NYSE:WFC), which is about $60 million — or roughly the entire value of Barclays PLC (ADR) (NYSE:BCS) — bigger than JPM.
Yes, this is a big stock.
It has also been one of the best stocks, at least in the world of giant banks. WFC is a Warren Buffett favorite and deserves to be. Since the bull market began six years ago, WFC has absolutely smoked the S&P 500, as well as every other large, publicly traded bank.
WFC is the nation’s biggest mortgage lender — a position that should serve it well as the housing market perks up. It also benefits from not relying on investment banking and trading activities like its Wall Street competitors.
When it comes to money center banks, there’s little doubt that WFC is the best.
#5: Microsoft Corporation (MSFT)
MSFT Market Cap: $350 billion
Microsoft Corporation (NASDAQ:MSFT), like Walmart, was one of the best stocks of the 1990s, but the ’90s were a long time ago.
MSFT was dead money for a decade after the tech bubble burst, and now it faces some serious secular shifts in how people use computers and access the Internet.
That hardly means MSFT is doomed, however. Yes, it’s missing out on mobile, payments and some other big trends, but it’s still dominant on the desktop — which isn’t going away despite slowing growth — and is seeing success with Big Data. Its place in the enterprise ecosystem pretty much ensures its place among the biggest stocks.
Microsoft might not be the best stock — revenue growth is slowing and shares look fully valued — but it’s not a dud either. After all, MSFT is a battleship stock with a river of cash flow and a very respectable dividend yield.
#4: Exxon Mobil Corporation (XOM)
XOM Market Cap: $352 billion
Exxon Mobil Corporation’s (NYSE:XOM) position among the biggest stocks befits its status as one of the world’s largest integrated oil companies.
At times in its long history, XOM has been among the best stocks to own, too. Exxon stock is a longtime market beater … but times have changed.
Slack demand and record industry-wide production levels have oil prices in a deep, prolonged funk — and they’ve taken Exxon with them. Indeed, XOM is off about 18% since oil prices began diving in midsummer.
Whether you should buy XOM as one of the best stocks going forward really depends on the view for oil prices. Oil prices are cyclical, of course, but the industry hasn’t seen a plunge like this since the Great Recession. Heck, U.S. oil production is back to levels not seen in 45 years.
So, XOM looks like it will continue to be one of the biggest stocks … but it won’t be a top stock to own.
#3: Berkshire Hathaway Inc. (BRK.B)
BRK.B Market Cap: $355 billion
There’s no question that Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) is one of the biggest and best stocks. Under Warren Buffett, Berkshire Hathaway has crushed the S&P 500 — and done so with less risk.
Whether Berkshire Hathaway can keep up its market-beating ways once Warren Buffett has passed is the singular question facing the stock. As simple — and folksy — as his approach and process might be, odds are it won’t be easy to replicate Warren Buffett’s success.
For the time being, Warren Buffett and partner Charlie Munger look to be as hearty and sharp as ever. In fact, Berkshire just teamed up with 3G Capital to merge Kraft Foods Group Inc (NASDAQ:KRFT) with Heinz.
And given its impressive collection of high-quality companies and blue-chip investments, Berkshire Hathaway can probably maintain its position as one of the best stocks for a good while after Buffett passes.
#2: Google Inc (GOOGL)
GOOGL Market Cap: $387 billion
Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is another super-megacap that should be slowing down. Google dominates its main market and is closing in on a total market value of $400 billion.
Indeed, at that size, GOOGL will be one of the biggest stocks for a long time.
And happily for GOOGL, there are still new worlds to conquer, which has allowed it to maintain an amazing growth rate for such a big company. GOOGL had annual sales of $66 billion last year and yet analysts project revenue growth of 14.5% this year and 15.5% next year. That’s about $10 billion in revenue.
GOOGL isn’t just putting up market-beating sales growth — its growth is accelerating. The market has problems with GOOGL’s prolific spending habits and its policy of not returning cash to shareholders, but those are concerns for shorter term market performance.
Over the long run, GOOGL’s generating the kind of growth that should allow it to beat the market easily.
#1: Apple Inc. (AAPL)
AAPL Market Cap: $740 billion
One of the main arguments against holding Apple Inc. (NASDAQ:AAPL) is the law of large numbers. With a market cap of $740 billion, the thinking goes, AAPL stock is so huge that its days of outsized growth are behind it. After all, there has never been a trillion-dollar company, and to double from here, AAPL would have to grow to $1.4 trillion.
It seems inconceivable, but even with its sheer size working against it, there’s no law saying Apple can’t hit a trillion in market cap. As long as Apple continues to generate profit growth, the stock will follow. That’s how it works.
If you believe in Apple’s ability to keep innovating, it’s only a matter of time before the company’s market cap grows to $1 trillion — and beyond.
Just don’t expect the market to pay an above-average multiple for shares. That’s how it discounts for AAPL’s bulk.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
