Though the stock market continues to ride high in 2021, the meatiest headlines have been made by growth stocks and exciting meme plays. While triple-digit gains have been made, these riskier picks. And investors cannot afford to get complacent. So, a case can be made for investing in mega-cap stocks in the current economic climate.
One of the easiest ways to fireproof your portfolio is to invest in mega-cap stocks dominating their respective markets. Yes, the price momentum of these mature companies with large market capitalizations does not compare favorably with the likes of Tesla (NASDAQ:TSLA) or Robinhood (NASDAQ:HOOD). But they will continue to pay dividends to their shareholders and progress at a nice pace because of their established positions.
Here are seven mega-cap stocks that are solid investments that will provide you with comfort when market volatility is high and economic uncertainty is on the rise:
- Morgan Stanley (NYSE:MS)
- Alibaba (NYSE:BABA)
- PayPal (NASDAQ:PYPL)
- Microsoft (NASDAQ:MSFT)
- Mastercard (NYSE:MA)
- JPMorgan Chase (NYSE:JPM)
- UnitedHealth (NYSE:UNH)
Investors in these stocks can look forward to healthy dividends and stock growth besides. Let’s dive in.
Mega-Cap Stocks to Buy: Morgan Stanley (MS)
The novel coronavirus pandemic wreaked havoc on lower-income Americans but didn’t seem to impact the finances of ultra-high net worth individuals and institutions very much at all. For example, investment banking giant Morgan Stanley had about $4 trillion of client assets and nearly 70,000 employees at the end of 2020.
Full-year net revenues climbed to a record $48.2 billion compared to $41.4 billion a year ago. Net income was $11 billion ($6.46 per diluted share) versus $9 billion ($5.19 per diluted share) a year ago.
The bank’s strength has traditionally been its equities-trading franchise — the biggest in the world. That segment had yet another great year: equity sales and net trading revenues increased 22% year on year.
In mid-July, the investment bank reported another stellar quarter, reporting net revenues of $14.8 billion compared with $13.7 billion a year ago. EPS of $1.85 a share handily beat the consensus estimate of $1.65 estimate per share.
Morgan Stanley’s equities trading once again topped estimates handsomely, producing $2.83 billion in revenue to beat analyst estimates by $400 million. Its two other significant divisions, wealth management and investment management, also surpassed expectations.
One other important area to consider when investing in MS stock is its dividend. The banking colossus has hiked its distribution for seven consecutive years, with a three-year growth rate of 32.6%. That’s a very healthy payout to go along with steady upward price momentum.
Alibaba is the world’s largest online retail website. In the fiscal year ended March 31, 2021, annual gross merchandise volume (GMV) transacted on Alibaba’s e-commerce market places in China reached approximately 7.49 trillion yuan. Alibaba’s revenue subsequently grew in the June quarter by 22%. Plus the company’s retail operations grew by 14% and cloud revenues were up 29%.
But it has been a challenging year for BABA stock. Shares of the e-commerce giant are down 10.8% in the last month as Chinese regulatory activity takes a steep toll on the stock.
Two events are of particular importance. Last November, Chinese regulators halted the initial public offering of Ant Group, the operator of the Alipay mobile payment service and Alibaba Group’s sister company.
Ant Group was poised to raise $35 billion in the world’s largest-ever IPO. On the bright side, according to a member of the board of directors, it will “not be too long” before Ant Group can resume its suspended IPO.
The other big regulatory development was a $2.8 billion fine levied against the Chinese tech giant for antitrust violations, leading to a net loss in the March quarter of 5.47 billion yuan, its first operating loss as a public company.
Overall though, BABA remains a very strong enterprise. My colleague Dana Blankenhorn does a great job explaining how omnipresent the Jack Ma-founded company is in China in an insightful article. You are essentially dealing with Amazon (NASDAQ:AMZN), Microsoft and MasterCard rolled into one.
Yes, the regulatory activity in China, much like the U.S. and Europe, will ramp up. But considering its size and strength, any dips are a massive buying opportunity.
PayPal provides electronic payment solutions to merchants and consumers, with a focus on online transactions. In 2020, PayPal’s total payment volume or TPV grew by around one-third year-on-year, as the digital payment provider increased exponentially during the novel coronavirus pandemic.
However, the San Jose, California-based company recently missed second quarter revenue estimates amid former parent eBay (NASDAQ:EBAY) switching to another payment processor. As a result, the stock dipped, providing you with a great opportunity to invest in this one.
At the end of 2020, PayPal had 377 million active accounts, including 29 million merchant accounts. It also owns Xoom, an international money transfer business and Venmo, a person-to-person payment platform, both of which are doing exceedingly well.
And despite the tough quarterly results, there is plenty to smile about if you are a PayPal stockholder. The company added 11.4 million new active accounts in the second quarter for a total of 403 million active accounts.
Revenue grew 19% year over year in the quarter that ended June 30. Total payment volume jumped 40% to $311 billion, while the Venmo app, which started supporting cryptocurrency services in April, saw payment volume jump 58% to $58 billion.
Compared to several mega-cap stocks, PYPL has excellent price momentum behind it.
The original darling of the dot com bubble remains a very strong name in the tech world. Microsoft doesn’t grab as many headlines as it used to, but this is a tech giant that has grown exponentially in the last five years. And it has diversified its business into several segments with robust recurring revenues.
Microsoft recently reported Q4 FY 2021 earnings, once again handily beating expectations. Adjusted EPS rose 48.6% over the year-ago period and revenue surpassed analyst estimates, up 21.3% compared to the year-ago quarter.
Microsoft’s Azure cloud revenue jumped 51% year-over-year, exceeding expectations. The platform now has a roughly 20% share of the $150 billion global cloud market as of the end of Q1 2021. second only to Amazon Web Services in terms of global cloud market share.
The Azure cloud platform is more than 200 products and services, a suite of tools and services developers can use for networking, storage, mobile and web application services, artificial intelligence (AI), Internet of Things (IoT) and other computing needs. Azure is key to Microsoft’s future, with recession-proof revenue streams and stable recurring fees.
Overall, with three broad divisions, including diverse businesses such as legacy Microsoft Office, SQL Server, Skype and LinkedIn, there is hardly any facet of your life that doesn’t connect with an MSFT product.
Mastercard has rewarded investors handsomely over the years. The stock has outperformed the S&P 500 by 177.1% and its sector by 190.2% in the past five years on a dividend-adjusted basis.
But lately, all the headlines are reserved for PayPal, an excellent stock in its own merits. MA won’t grow nearly as fast as PayPal. However, Mastercard is also an interesting way to play the growing digital payment trend. As things get back to normal, people will start traveling more and cross-border card transactions will increase, benefitting Mastercard massively.
Most recently, Mastercard surpassed sales and earnings estimates for the second quarter. The company reported $4.5 billion in revenues, beating estimates by 3.7%. EPS of $2.08 a share also beat the $1.74 expected by Wall Street analysts.
International transactions, Mastercard’s bread and butter, rose 33% in local currency from the June 2020 quarter. This was due to a strong increase in domestic card spending and gains in cross-border purchases as countries reopen for travel and business.
PayPal won’t see the same tailwinds because it is doesn’t benefit the same way from pent-up travel demand. It makes MA a slightly better reopening play in my eyes.
JPMorgan Chase (JPM)
Although banks had a rough 2020, some fared better than others.
America’s biggest bank, JPMorgan, reported net revenue of $29.2 billion and $29.1 billion for the fourth and third quarters of 2020. Considering the steep fall in interest rates and the overall depressed economic atmosphere, these are excellent numbers.
More recently, the banking giant posted a 155% jump in second-quarter profits as the U.S. economy continued to rebound.
Trading revenue fell 28% from last year’s record-breaking levels. But a surge in deal-making and the release of $3 billion set aside to cover feared pandemic losses more than made up for it.
Looking ahead, the country’s largest bank offered a muted outlook. It warned that low-interest rates, weak loan demand and a slowdown in trading will weigh down results in the forthcoming quarters.
“We have bright spots in certain pockets and the consumer spend trends are encouraging,” Chief Financial Officer Jeremy Barnum spoke on a call.
However, he warned that corporate clients and consumers have a lot of cash at their disposal due to substantial stimulus funds and low interest rates. Hence, core lending revenues might not benefit this year from the broader recovery.
Nevertheless, JPMorgan is a bellwether for the U.S. economy. As consumer spending comes roaring back to life, JPM is a safe stock to have in your portfolio.
UnitedHealth Group (UNH)
UnitedHealth Group is a data-driven healthcare enterprise comprised of Optum, its pharmacy and care delivery division, and UnitedHealth, the nation’s largest health insurer. Overall, the group oversees 140 million patients who produce approximately 1.5 trillion transactions per year. That is a big data pool, which is leveraged to improve medical care.
For instance, the company immediately rescheduled 4,000 appointments to virtual telemedicine visits at the pandemic’s start. As soon as trends emerge, Optum analyses them and acts on the newly emerged patterns. This gives it an edge over more traditional companies and platforms.
Over the last five years, the tech-focused healthcare company has seen earnings increase by 18.8%, while sales jumped 9.0%. For more than ten years, the company has hiked the dividend consistently; the distribution has grown by 24.5% during this time.
In summary, UnitedHealth is an asset-light business. It pays a handsome dividend and has grown exponentially in the last five years. If you want a great defensive pick for your portfolio, look no further.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.