Tags: Mega | Cap | Stocks | buy

WSJ: Now May Be Best Time to Buy 'Mega-Cap' Stocks

By    |   Monday, 12 March 2012 01:54 PM

"Mega-cap" stocks look set for their day in the sun, after lagging the broader market over most of the past 12 years.

Mega-cap companies include those with a market capitalization of $100 billion or more. Since the stock market reached its zenith in March 2000, the Standard & Poor's 100-stock index, which has an average market cap of $114 billion, dipped 0.4 percent annually, including dividends, according to Morningstar.

Meanwhile, the S&P 500 index of large cap stocks produced an annual gain of 0.9 percent, the small-cap Russell 2000 returned 4.2 percent annually, and the S&P MidCap 400 returned 7.2 percent, The Wall Street Journal reports.

But things have started to change. The S&P 100 has appreciated 1.8 percent during the last month, while the Russell 2000 has lost 2.5 percent.

Perhaps the biggest factor in mega-cap stocks’ favor is valuations. At the end of February, the S&P 100 traded at 12.1 times 12-month forward earnings, compared to 15.4 for the Russell 2000.

"When valuations are so skewed in one direction, that becomes all that matters in the long term," Doug Ramsey, chief investment officer at Leuthold Weeden Capital Management, tells The Journal.

In addition to valuations, mega-cap stocks offer safety and often attractive dividend payments. A company that large generally isn’t going under anytime soon.

And thanks to their steady and growing revenue stream, many of these companies have increased their dividends annually for many years.

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Monday, 12 March 2012 01:54 PM
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