Add Some Giant Stocks to Your Portfolio

Do you own any giant stocks? I’m talking about the mega-cap industry-leaders that dominate their corner of the market.

If you remember market capitalization is how we measure the total worth of a company. It is the way you categorize companies by size.

You calculate a company’s market capitalization by multiplying the price per share times the number of outstanding shares. A simple way of thinking of it is how much you would pay to buy every share of stock on the market.

By Size

A general break down by size of companies is:

• Small Cap under $1 billion
• Mid Cap $1 - $10 billion
• Large Cap $10 billion plus

Many people add another category of mega-cap, which includes companies with a market cap exceeding $100 billion.

Russell Investments, the company that generates a number of fine market indexes, has an index that tracks these giants. It’s called the Russell Top 50 Index.

The 50 companies in this index represent about 40% of all domestic equity in the U.S. markets. That’s how big they are.

You would recognize all of these companies: Microsoft, Bank of America, Exxon, Wells Fargo, Dell, and so on.

Should you own any of these giants? Certainly, a diversified portfolio should include large cap stocks, but what about these “800-pound gorillas,” as one news article called them?

Inflation

If you are concerned about inflation and rising interest rates or a slowing economy, industry leading mega-cap stocks with solid balance sheets (lots of cash, manageable debt) are a relative safe place to weather the storm.

They are – as a group – unlikely to experience the wild swings that smaller companies may give you. If the water is choppy, do you want to be in a small boat or a large boat?

Conclusion

Mega-caps can provide a safer haven than smaller stocks when the near-term looks shaky. Consider adding them to your portfolio for balance if the course ahead seems uncertain.