To put it simply, large cap stocks simply refers to the largest stocks on the market. When you hear an investor or a newscaster talking about large cap stocks, they are simply referring to big companies which have a lot of stock owned by investors.
More specifically, a stock’s market capitalization (the “cap” for short) is the value of its share price multiplied by the total number of shares owned by investors.
Large Cap Stocks Definition and Broker Variance
Large cap stocks are typically defined as having a cap of 10 billion or higher. Any stock site like Google or Yahoo Finance will always list the Market Cap for you so you do not have to actually calculate this yourself.
However, you should note that there is no universal agreement upon what is and what is not a large cap stock. Different brokerages often have their own definitions for what a large cap stock is, so if you are buying online and sorting by cap size, make sure you know exactly how your broker is sorting things.
Mega Cap Stocks – A Subsection of Large Caps
Some brokerages or investment media sources have created a specific subset of the biggest large cap stocks and have dubbed them “mega caps”. While most people agree that large cap stocks are companies with a cap of 10B and up, almost no one agrees on the size of mega caps, and this varies from site to site.
I have seen Mega Caps set as low as a market cap of 50B with an upwards of 200B. The mega cap divider is not extraneous though, as the biggest companies (like Exxon Mobil) can be 30 times larger (or more!) than some of the smaller large caps.
Difference Between Blue Chips and Large Cap Stocks
Blue chip stocks are all large cap stocks, but not all large cap stocks are considered blue chip stocks. Large cap stocks are simply large companies, whereas blue chip stocks are proven winners which are leaders in their fields.
With the advent of the internet, the term “blue chip” has been thrown around in situations where it simply does not fit. New stocks are typically not blue chip stocks; a company needs a certain level of branding and recognition to be considered a blue chip stock (at least by my standards).
For example, I have seen Chipotle (CMG) described as a blue chip stock many times, but I could hardly consider it to be one at this time. At the time of this writing, the company is very profitable and growing quickly.
However, blue chip stocks are not companies which are expanding rapidly but rather are sitting at the top of their market. Perhaps Chipotle is the #1 higher-quality Tex-Mex fast-food joint in the USA. However, when you think of fast food blue chip stocks, you think of McDonald’s, not Chipotle.
It is not a slight at Chipotle at all – in fact I eat there regularly and think they have a great business model, but do not confuse companies with great potential for blue chip stocks.
Blue Chips are large market cap stocks belonging to profitable companies which are considered to be more or less stable with no immediate threats. They tend to grow at an appreciable rate (but not as quick as some smaller, less established stocks). As a result, blue-chip stocks rarely spike up or down in value; as far as common stock goes, blue chips are considered just about as safe as it gets.
What are the Best Large Cap Stocks?
Personally, I think the best reason to invest into large caps is to offer some stability to your portfolio and to buy into stocks with great dividends. There are a lot of large caps which are turning out decent dividends, such as Walmart (WMT), which at the time of this writing has averaged about a 2% dividend each year, while the stock price has moved up nearly 10% over the last 5 years despite the recession.
Large cap stocks are also great for those just learning how to invest in the stock market as they typically do not vary in price as often as smaller-cap stocks.
What Are Large Cap Stocks – Large Cap Definition and List Conclusion
The term “large cap stocks” simply refers to the largest companies on the stock market, typically with a market capitalization of 10B or higher. For those learning how to invest, large caps tend to make up the bulk of an investor’s stock portfolio.
For best results with large caps, you may consider investing across different sectors (such as tech, pharma, retail, etc) or focusing in on a particular sector which you believe is due for growth. Naturally, like any investment, investing in large caps does not offer 100% assurance against market decline.