📈 Large Cap ETFs and Stocks 📈
🆕Please check @Xander882214 & @sydward ’s contribution to this post series by clicking the #marketcapitalizationcollaboration hashtag.
📌Market capitalization
Market capitalization tells you how much money the stock market believes any company is worth. A company's market capitalization is found by “multiplying the price of a stock by its total number of outstanding shares”. (Fidelity, 2022)
Small-cap stocks are generally stocks that are worth $300 million to $2 billion dollars. Mid-cap stocks are generally valued around $2 billion to $10 billion dollars and Large-cap stocks are generally within the $10 billion dollar and up range.
Any company whose valuation is lower than $300 million dollars or above $200 billion dollars, would fit into the micro-cap or mega-cap stock designation. Micro-cap stocks can be valued as low as $50 million dollars and mega-cap stocks can have market capitalizations in the trillions.
“On Aug. 2, 2018, Apple became the first company in history to achieve a market cap of $1 trillion. Today, Apple has a market cap of $2.59 trillion. That’s more value than the entire economic output (GDP) of all but six countries in the world — the U.S., China, Japan, Germany, India, and the U.K.” (Andrew, 2022)
📌Large-cap and Mega-cap Stocks
Large-cap stocks are stocks that have a market capitalization of more than 10 billion dollars. Large-cap stocks are the heavy-weight boxing champs of the business world and as true heavyweights, these companies are household names, and if they pay dividends, they generally have a long history of paying dividends.
Large-cap stocks as a category are made up of the global and multinational businesses that we all know and love. Large-cap companies are the companies that define the stock market and are listed within indexes like the Dow, the S&P 500, and the Nasdaq composite (Yahoo, 2022)
Investing in Large-cap stocks has historically been considered a conservative investment strategy. Large-caps were generally considered to be a bet on large companies that are the biggest players in their respective fields. Large-cap stocks are only surpassed by mega-cap stocks. “Mega cap generally refers to companies with a market capitalization above $200 billion.” (Chen, 2022)
By percentage, large-cap stocks only make up 15% of the US Stock market, while mega-cap stocks only make up 1%. Businesses must be very well managed and profitable in order to become large-cap or mega-cap stocks. Because public listed companies must report earrings, success in business tends to increase stock prices.
📌How inflation affects large-cap stocks
As stated in the previous paragraph, large-cap and mega-cap stocks are an elite group of stocks that make up only 16% of the total US Stock market compared to small and medium-cap stocks, which make up a combined 63% of US stock market. (Lincoln, 2021)
And because large-cap stocks generally tend to be the top companies in their field, they are generally able to use their size and resources to better withstand inflation or market downturns.
“Because companies often are able to charge higher prices when inflation heats up — they have ‘pricing power,’ in other words — their earnings do not suffer as much as you might think. In fact, according to data back to 1871 provided by Yale University’s Robert Shiller, the S&P 500’s nominal earnings per share have grown faster, on average, when inflation has been higher.” (Hulbert, 2021)
During the latest market volatility, which occurred in part due to record inflation, Chipotle ($CMG ) , which has a current market cap of about $40 billion, demonstrated its pricing power by raising its food cost by 4% to account for the company's rising cost.
This price increase brings $CMG 's prices 10% higher over the last year but only as a response to the increasing cost of meat, avocados, freight, and employee wages. As a leader in the fast-casual business, $CMG believes that consumers will be willing to absorb the price increases because they have resisted raising prices for so long.
In the past, $CMG has avoided raising prices by streamlining its supply chain cost, taking advantage of operational efficiencies, and increasing the quality of its products and as a result, $CMG is still able to provide its customers with their favorite meals for under $10 even after increasing its prices to cover rising cost (Kate, 2022).
👀 @sydward ’s post on #midcap stocks here https://public.com/p/kl4qnv8pcKWB4lWNXWwDQ9SeZ1Avv45W
👀 @Xander882214’s post on #smallcap stocks here https://t.co/w6NIEEwrH9
📚 Additional reading:
Andrew , L. (n.d.). Small-cap vs. Mid-Cap vs large-cap: Why the differences matter for your investments. Yahoo! Retrieved February 10, 2022, from https://www.yahoo.com/now/small-cap-vs-mid-cap-160235008.html
Chen, J. (2022, January 31). Mega cap defintion. Investopedia. Retrieved February 10, 2022, from https://www.investopedia.com/terms/m/megacap.asp
Fidelity. (2022). What is market cap? Fidelity. Retrieved February 10, 2022, from https://www.fidelity.com/learning-center/trading-investing/fundamental-analysis/understanding-market-capitalization
Hulbert, M. (2021, November 12). Opinion: If inflation is more than transitory, consumer prices and stocks could both keep climbing. MarketWatch. Retrieved February 10, 2022, from https://www.marketwatch.com/story/inflation-is-boosting-prices-and-stocks-heres-why-that-isnt-a-surprise-11636672378#:~:text=In%20fact%2C%20according%20to%20data,is%20a%20good%20inflation%20hedge.
Kate, K. (2022, February 9). Chipotle plans to hike menu prices again, citing inflation. CBS News. Retrieved February 10, 2022, from https://www.cbsnews.com/news/chipotle-says-more-price-hikes-on-its-menu-coming/
Lincoln, T. (2021, June 27). What is market cap? everything you need to know. Medium. Retrieved February 10, 2022, from https://medium.com/the-investors-handbook/market-cap-a474214c1368
Yahoo! (n.d.). Small-cap vs. Mid-Cap vs large-cap: Why the differences matter for your investments. Yahoo! Retrieved February 10, 2022, from https://www.yahoo.com/now/small-cap-vs-mid-cap-160235008.html
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As always I love your attention to detail and thank you for all the reference links! Now I have plenty to read on my lunch break 😃
🥰 Good stuff
Thanks for the material!👏🏼
Great post! 👏
Damon Gwinn@damondamnit
This was a great read!
Thank for the information 🙏
This is a great post @arbitrage great job as always!! It’s awesome watching large caps pivot and report positive earnings despite price increases.
Loving the #marketcapitalizationcollaboration posts!!!
Emma@emmaz
Enzo@enzo
Didn’t realize that large cap stocks only made up 15% of the US Stock Market! 🤯
Enzo@enzo
@arbitrage Glad to hear that! 💪 💯
