When you look at the broader stock market, the little guys often get lost in the shuffle. That’s because a small start-up or a penny stock can see massive income based on small innovations or an exponential increase in market share due to even minor demographic shifts or industry trends. The reality is that entrenched blue chips just don’t move as fast. That can be a good thing in troubled times because it reduces risk, but it can also frustrate investors who watch speedy little companies lap them several times over.
Personally, I see the benefit in both asset classes. I just released my list of my favorite blue chip stocks to buy, and just days ago offered up a new list of 11 penny stocks to buy now. That’s because you can find great stocks of all sizes if you know what to look for.
However, if you’re looking to learn something about the broader market it’s helpful to pay more attention to the blue chips. In fact, the bigger they are the better example they often can be of macro trends. That’s why I want to take a moment today to discuss what I see across 38 “mega cap” stocks with a market size of more than $100 billion at current valuations:
Mega Cap Blue Chip Stocks to Buy
First, let’s look at the good companies. My fundamental analysis of earnings, sales and other key metrics indicates that out of the 38 mega cap blue chips out there, a mere six are worth buying right now. Not a good sign, but after a brutal May it shouldn’t come as much of a surprise.
It is important to note, however, the sectors in which these top mega cap stocks are located – namely technology and computer staples.
Apple Inc. (AAPL) is forging ahead with red-hot sales of its iPad and iPhone gadgets, lifting the entire tech sector as a result. After a blowout first-quarter earnings report that topped estimates by over 35%, nobody doubts the strength of AAPL stock.
Related Article: Apple iPad Owners Want Flash, Disagreeing with Apple CEO Jobs
Intel (INTC) is also flying high on the demand for its processors due to sales of iPads and other high-tech gear, seeing profits soar over the last four quarters from a loss of -7 cents a share in Q2 of 2009 to profits of 43 cents a share in its Q1 report just several weeks ago. Forecasts for Intel’s next earnings report in mid-July are set at 43 cents, which will present a massive year-over-year improvement if that estimate holds.
Hewlett-Packard (HPQ) is seeing similar success with its computers and gadgets. It has met or exceeded Wall Street estimates in each of the last four quarters and is projecting growth of 15% to 20% this year.
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It’s safe to say that when you look at the mega caps, you can find lots of reasons to be bullish on the tech sector.
Another sector worth a look is consumer staples. Beverage giant PepsiCo (PEP) and household products maker Procter & Gamble (PG) are at the top of the list thanks to improving global sales and a steady revenues. While consumers are slowly warming up to purchases like new cars and new homes, consumer staples sales have been strong over the last year or so and should continue to be firm going forward.
Related Article: Soft Drink Stocks Fight Sugar Tax
As a bit of an outlier in the top mega caps to buy, Merck (MRK) also makes the top of my list. I give “hold” ratings to mega cap pharma competitors like Johnson & Johnson (JNJ), and even a “sell” rating to rival Pfizer (PFE). Merck stands along due to four straight quarters of earnings that have met or exceeded EPS forecasts and continued fundamental strength, but don’t confuse this company’s individual strength with an endorsement for the whole sector.
Related Article: Buy MRK Stock and Sell PFE Stock – Just One of 5 FREE Trade-Up Trades
Here’s a look at the list of mega cap blue chips to buy:
| Symbol | Company Name | Sector | Market Cap (B) |
PortfolioGrader Grade |
| AAPL | Apple Inc. | Computers & Peripherals | $233.7 |
A – Strong Buy |
| HPQ | Hewlett-Packard Co. | Computers & Peripherals | $108.1 |
B – Buy |
| INTC | Intel Corp. | Semiconductors | $118.6 |
B – Buy |
| MRK | Merck & Co Inc | Pharmaceuticals | $105.0 |
B – Buy |
| PEP | PepsiCo Inc. | Beverages | $102.3 |
B – Buy |
| PG | Procter & Gamble Co. | Household Products | $175.9 |
B – Buy |
Full disclosure: In my Blue Chip Growth investment newsletter, I am recommending Apple to my subscribers as of this writing. I am also recommending Intel currently in my Quantum Growth investment newsletter.
Mega Cap Blue Chip Stocks to Sell
Considerably longer is the list of mega cap stocks that I would recommend selling right now. Despite being fairly conservative investments even on their worst days, there’s not reason to hang on to a bad stock even if it has a market ca of $100 billion. I’d recommend trading out any of these stocks immediately for a better company, even if that means going smaller.
I won’t bore you with details from every since stock on this list of blue chips to sell, but let me at least cover the big trends:
First, it should be clear that oil and energy stocks are the worst off. We can thank BP plc (BP) for that. Exxon Mobil (XOM), Total (TOT), Chevron (CVX) and several others have been weighed down thanks to continued mayhem in the Gulf of Mexico and fears that Congress will get vindictive with regulations in the wake of this crisis. I would steer clear of any crude oil stock for now.
Related Article: Is BP Stock Worse than Goldman Sachs (GS)?
Thanks to a crisis of a different kind – namely sovereign debt problems in Europe and continued fallout from mortgage trouble in the U.S. – banks are another sector worth avoiding. That goes for Citigroup (C), Wells Fargo (WFC) and JP Morgan Chase (JPM) among the mega caps.
Related Article: 12 Stocks to Buy in the Financial Sector – And 12 to Sell
Peppered in there are a few other outlier stocks as well, such as automaker Toyota (TM) that continues to suffer in the wake of a recall earlier this year and struggling telecom provider AT&T (T) may be facing a mass migration when its exclusive partnership with Apple and the iPhone comes to an end.
Related Article: AT&T Data Plan Change – Is it Price Gounging?
Here’s the complete list of mega cap stocks to sell:
| Symbol | Company Name | Sector | Market Cap (B) |
PortfolioGrader Grade |
| T | AT&T Inc. | Diversified Telecommunications | $143.6 |
D – Sell |
| BHP | BHP Billiton Ltd. | Metals & Mining | $180.4 |
D – Sell |
| BBL | BHP Billiton PLC | Metals & Mining | $152.7 |
D – Sell |
| BP | BP PLC | Oil Gas & Consumable Fuels | $134.5 |
D – Sell |
| CVX | Chevron Corp. | Oil Gas & Consumable Fuels | $148.4 |
D – Sell |
| CHL | China Mobile Ltd. | Wireless Telecommunications | $186.8 |
D – Sell |
| C – Hold | Citigroup Inc. | Diversified Financial Services | $113.3 |
D – Sell |
| XOM | Exxon Mobil Corp. | Oil Gas & Consumable Fuels | $284.0 |
D – Sell |
| HBC | HSBC Holdings | Commercial Banks | $156.3 |
D – Sell |
| JPM | JPMorgan Chase & Co. | Diversified Financial Services | $157.3 |
D – Sell |
| PFE | Pfizer Inc. | Pharmaceuticals | $122.8 |
D – Sell |
| PTR | PetroChina Co. Ltd. | Oil Gas & Consumable Fuels | $196.4 |
F – Strong Sell |
| PBR | Petrobras Petroleo Brasileiro | Oil Gas & Consumable Fuels | $156.3 |
F – Strong Sell |
| RDS.A | Royal Dutch Shell PLC | Oil Gas & Consumable Fuels | $161.3 |
D – Sell |
| TOT | Total S.A. | Oil Gas & Consumable Fuels | $104.2 |
F – Strong Sell |
| TM | Toyota Motor Corp. | Automobiles | $113.4 |
D – Sell |
| WFC | Wells Fargo & Co. | Commercial Banks | $149.4 |
D – Sell |
Mega Cap Blue Chip Stocks to Hold
Of course there are a host of other companies in between these two groups. As you’ll see they are a grab bag across a number of sectors – including some industries that on the whole seem to be doing very well or doing very poorly.
I’m including these mega cap stocks to hold as an example of how Wall Street is never black and white. There are always a few stocks that buck the trends, and at the end of the day its up to investors to do their homework and make sure the individual stocks they buy are succeeding on the strength of their own numbers – not a fad or investment trend.
Here are the list of mega cap stocks to hold.
| Symbol | Company Name | Sector | Market Cap (B) |
PortfolioGrader Grade |
| BAC | Bank of America Corp. | Diversified Financial Services | $157.9 |
C – Hold |
| BRK.B | Berkshire Hathaway Inc. | Capital Markets | $174.3 |
C – Hold |
| LFC | China Life Insurance | Insurance | $123.3 |
C – Hold |
| CSCO | Cisco Systems Inc. | Communications Equipment | $132.8 |
C – Hold |
| KO | Coca-Cola Co. | Beverages | $118.5 |
C – Hold |
| GE | General Electric Co. | Industrial Conglomerates | $174.6 |
C – Hold |
| GOOG | Google Inc. (Cl A) | Internet Software & Services | $154.6 |
C – Hold |
| IBM | International Business Machines | IT Services | $160.6 |
C – Hold |
| JNJ | Johnson & Johnson | Pharmaceuticals | $160.8 |
C – Hold |
| MSFT | Microsoft Corp. | Software | $226.1 |
C – Hold |
| NVS | Novartis AG | Pharmaceuticals | $103.0 |
C – Hold |
| ORCL | Oracle Corp. | Software | $113.2 |
C – Hold |
| VALE | Vale S.A. | Metals & Mining | $141.7 |
C – Hold |
| VOD | Vodafone Group PLC | Wireless Telecommunications | $105.5 |
C – Hold |
| WMT | Wal-Mart Stores Inc. | Food & Staples Retailing | $191.4 |
C – Hold |
Full Disclosure: In my Blue Chip Growth investment newsletter, I am recommending Novartis to my subscribers as of this writing.
About Portfolio Grader: Every Sunday, renowned growth stock expert Louis Navellier runs a fundamental analysis on the top 5,000 Wall Street companies. Armed with this research, Navellier offers a rating for each company reflected as a simple letter grade, with A being “strong buy” and F being “strong sell.” Portfolio Grader’s stock data is free and open to the public and can be accessed online here.
