Buy These Friendly Giants

1/30/2017


Our winner-take-all economy doesn't give many points for second place. Companies like mega-retailer Amazon.com ($837; AMZN), internet giant Alphabet ($858; GOOGL), and iPhone maker Apple ($122; AAPL) either engulf or flatten rivals, making enemies along the way.

Consumer advocates and politicians tend to pile on the biggest companies, complaining about their huge influence. And they certainly have influence — the largest fifty companies in the S&P 500 Index combine for $10.3 trillion in stock-market value, fully 49% of the index's total market value.

Which looks like business as usual.

The largest 50 stocks made up at least 48% of the S&P 500's market capitalization 10 and 20 years ago. And as big as the Alphabets and Apples of the world have become — both top $600 billion in stock-market value, by far the largest companies trading on U.S. exchanges — investors should keep that size in perspective. The entire S&P 500's market value has more than tripled in the last 20 years.

Apple and Alphabet combined make up 6.1% of the S&P 500's market value — less than the 6.6% from Apple and Exxon Mobil ($85; XOM) five years ago and in line with the 6.1% from Exxon and General Electric ($30; GE) 10 years ago.

While the names and industries of the players at the top change, the larger landscape of giants and dwarfs does not. Does this mean you should shrink away from shares of smaller companies? Not at all, because plenty of them find solid market niches; we recommend many midcap stocks, and our sister newsletter Upside focuses on small-caps.

But there are reasons — like market power, cost advantages, and economic resilience — why we recommend some enormous stocks. You'll find our favorite big 'uns in the table below.

OUR FAVORITE GIANTS
---------- Stock-Market Value (Billions) ----------
-------- Quadrix Scores --------
Company (Price; Ticker)
Today
($)
5 Years
Ago
($)
5-Year
Change
(%)
Rank In
Sector
As % Of
S&P 500
Sector
Trailing
P/E Ratio
Value
Quality
Overall
Sector
Rank
Alphabet
($858; GOOGL)
641.2
149.6
328
2
14
26
41
97
87
Technology
Focus Buy *
Amgen ($154; AMGN)
116.0
54.1
115
8
4
14
82
93
85
Health care
Buy *
Apple ($122; AAPL)
657.3
425.6
54
1
14
15
82
93
78
Technology
Buy *
Biogen ($273; BIIB)
59.9
28.7
109
16
2
14
85
98
89
Health care
Buy *
Comcast
($73; CMCSa)
178.5
72.2
147
2
7
22
65
83
62
Cons.
discretion.
Buy *
CVS Health
($79; CVS)
85.3
54.3
57
9
4
14
93
85
82
Cons. staples
L-T Buy
Disney ($108; DIS)
174.5
69.6
151
3
7
19
69
95
76
Cons.
discretion.
L-T Buy
FedEx ($193; FDX)
52.1
28.8
81
11
2
17
74
80
78
Industrials
Focus Buy *
J.P. Morgan Chase
($86; JPM)
310.2
141.7
119
2
10
14
78
58
93
Financials
L-T Buy
Note: Quadrix scores are percentile ranks, with 100 the best.     * Also on Long-Term Buy List.

 


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