Investors often have a love-hate relationship with mega-cap stocks. But if there’s anything the last year has shown us, it’s that these investments are actually leading the way.
Mega-cap stocks have a market capitalization of over $200 billion and count tech behemoths like Alphabet and Facebook (NASDAQ:FB) as members. And with the remote economy having taken shape in 2020, these dominant stocks don’t seem to be slowing down anytime soon. The companies in this category don’t just have solid business models — they also provide steady revenue and earnings.
So, with mega-cap strength expected to continue in 2021, here are 7 stocks worth investing in:
- Microsoft (NASDAQ:MSFT)
- Peloton (NASDAQ:PTON)
- Apple (NASDAQ:AAPL)
- Johnson & Johnson (NYSE:JNJ)
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
- Pfizer (NYSE:PFE)
- The Home Depot (NYSE:HD)
Mega-Cap Stocks to Buy: Microsoft (MSFT)
Microsoft is a name that needs no introduction. The tech behemoth has always been a strong performer, driven by its focus on innovation.
True to its name as a leader in digital transformation, MSFT is constantly evolving with the times. Since the onset of the pandemic, the company has placed a greater emphasis on its collaborative tools — such as One Drive and SharePoint — which help employees stay connected regardless of their location. Microsoft’s communication tool, Teams, also experienced major growth in the last 12 months. Back in October, it reached an active user base of 115 million people.
Adding to this rally is Microsoft’s cloud platform, Azure. Of course, the remote economy has led to a rise in demand for cloud services. Azure is dominating that space. Although the platform is still behind Amazon’s (NASDAQ:AMZN) Amazon Web Services (AWS) in terms of market share, the company has adopted an aggressive growth strategy which should pay off in the coming months.
Given the numerous tailwinds, MSFT stock has set its ambitions high for 2021, with double-digit earnings per share (EPS) predicted for the next quarter. With its impressive more than trillion-dollar valuation, this giant is one of the fastest-growing mega-cap stocks on the market right now.
You might have guessed it, but the rise of remote workouts was a boon for Peloton as more people looked for new ways to stay active within the confines of their homes. Over the course of 2020, PTON stock was up 350%. Then it followed that with an impressive earnings reports on Feb. 4.
Peloton ended the previous quarter with 1.67 million subscriptions and experienced a revenue spike of 128% at $1.06 billion. Management also stated that it will continue to “invest heavily in systems, teams, and manufacturing capabilities” in order to stay competitive.
However, this pick of the mega-cap stocks does have its naysayers, with many questioning its growth potential in a post-pandemic world. But I think there is good reason to believe that this company will continue to thrive for the long haul.
This is because, like many pandemic habits, remote workouts are something that will remain sticky. Having access to world-class instructors from the comfort of your home is a convenience that’s still unmatched. So, the cult following that Peloton has garnered in just one year should sustain demand levels well into the future.
With sales of Apple’s iPhone 13 expected to hit 100 million orders, AAPL stock is on every investors’ radar right now. However, the company has a lot going for it in addition to its successful product launches.
During the pandemic, Apple made some bold moves with its software — specifically with its Fitness+ service. Not only does the company’s fitness subscription expand Apple’s core target market, but it also enables seamless integration between hardware and software. This fitness service is integrated on the Apple Watch and the workouts can be streamed on an Apple TV or iPad.
Looking at its core hardware business, a series of new product launches have helped Apple stay competitive in this area. Apple’s 5G-enabled phone led to a 8% increase in sales while Mac computer sales climbed by 49.2% year-over-year (YOY) in the fourth quarter of 2020. More recently, AAPL also announced that it has been working on an Apple car, which is set to release sometime between 2024 and 2027. This could help the company enter the high-growth market of electric vehicles (EVs) while also contributing to its diverse portfolio.
So, Apple’s ability to constantly innovate makes this stock a winner in my books. If you are looking for a great long-term investment, this is one of the best mega-cap stocks to buy.
Johnson & Johnson (JNJ)
Johnson & Johnson made headlines recently, becoming the third company to receive approval from the U.S. Food and Drug Administration (FDA) for its Covid-19 vaccine. JNJ’s recent vaccine breakthrough paves the way for the company to deliver on its order of 100 million doses to the U.S. government. Physicians and analysts have expressed interest in the vaccine, calling it an absolute game-changer.
With the pace of the current vaccine rollout, experts predict it could take up to November to achieve herd immunity. However, JNJ’s single-dose vaccine will certainly speed things up. And with demand already high, as the company begins to scale its vaccine production, its revenue from the sales will drive higher in the coming months.
If you are looking for a pandemic recovery play, JNJ stock is one the best mega-cap stocks to place your bets on.
GOOG stock lagged for much of 2020, but things are finally looking up for the tech giant. This pick of mega-cap stocks is already up over 18% year-to-date (YTD) leading many experts to revise their price estimates for the company.
For example, analysts at Citi expressed optimism in GOOG’s growth potential, giving the stock a price target of $2,415. That’s a 16% increase from its current price. This expected growth will be largely driven by Google Cloud and YouTube.
Although smaller in size than its cloud peers, Google Cloud grew sales by 46% in 2020. So, as remote work continues to remain the norm, this segment has major revenue potential. On top of that, the second tailwind for Alphabet is YouTube, which has thrived amidst increased demand for online entertainment. In its most recent quarter, advertising on the platform increased by 46% YOY, generating $6.9 billion in revenue.
Looking at the long-term, the growth potential in Google’s search engine, cloud business and YouTube make this stock a sound investment.
After a string of bad years, PFE stock finally showed promise after the approval of its Covid-19 vaccine late last year. However, shares of the company are on the decline despite the good news. This is because the healthcare giant is still actively working to shed its underperforming segments in an effort to reinvent itself.
With the vaccine winds having shifted in Pfizer’s favor now, though, the company is shaping up to be one of the best mega-stocks to buy on the dip. In fact, there are a couple of long-term tailwinds that should sustain PFE’s growth for the long haul.
For example, in addition to its vaccine, Pfizer has also restructured its portfolio of drugs. The company’s legacy drugs that no longer have patent exclusivity were handed over to Viatris (NASDAQ:VTRS), a newly formed joint venture between Mylan and Pfizer’s Upjohn business. This handover should take some pressure off its losses in the coming months.
Adding to this is the healthcare giant’s other growth-enhancing drugs — according to Bloomberg Quint, “Major blockbusters, including the cancer drug Ibrance, the anticoagulant Eliquis, and the Prevnar vaccine franchise drove much of the company’s growth.” So, this coupled with Covid-19 vaccine sales will help the company generate slow-but-steady returns in the next couple of years.
The Home Depot (HD)
Last up on this list of mega-cap stocks is The Home Depot. As you probably already know, the pandemic has led to a spike in home-improvement projects as more people spent a greater part of their day at home. This has served as a tailwind for HD, a leader in the home-improvement space.
Over the course of 2020, the company experienced solid growth levels, although the stock is now only up 3% in the last 12 months. In its most recent earnings report, net and same-store sales were both up by 25%. But despite a great report, HD shares fell following the results. Why? Uncertainty from the pandemic looms over its future.
Looking at the bigger picture, though, there a number of reasons to believe that HD stock will thrive post-pandemic as well. For one, remote work will continue to remain a dominant workplace trend. Many companies have already made working from home a permanent option, while others will incorporate it to a varying degree. Ultimately, with people spending more time at home, demand for the company’s home-improvement products and services will remain stable. On top of that, Home Depot has a history of impressive growth and just increased its dividend by 10%.
So, this short-term dip shouldn’t be a major cause for concern, in my opinion. Home Depot gives investors plenty of reasons to remain confident in its performance.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020.