What Is a Large-Cap Stock? Definition, Valuation, and Risk Level

What Is a Large-Cap Stock? Definition, Valuation, and Risk Level ...

A large-cap stock has a market capitalization of between $10 billion and $200 billion.

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Contents

  • What Are Large-Cap Stocks? How Many Are There?
  • What Is Market Cap? Where Do Large Caps Fit In?
  • Why Are Large-Cap Stocks Less Volatile?
  • When Do Large-Cap Stocks Do Well?
  • Are Large-Caps Overvalued?
  • How Can I Buy Large-Caps? What Are Some Large-Cap Stocks to Buy Now?

What Are Large-Cap Stocks?How many are there?

Size signifies everything on Wall Street: The greater the company, the more valuable it is perceived to be by the public. Large-cap businesses have a market capitalization of between $10 billion and $200 billion; these are corporations like McDonalds (MCD), T-Mobile (TMUS), and Dow Chemical (DOW), which are household names because they make our products and services every day.

Blue chips are also used in large-cap stocks, because if you have ever played poker, you''ll know that the blue poker chips are the most valuable.

Large-cap stocks represent established companies with broad global operations and a track record of stable earnings growth. They have demonstrated that they can withstand market volatility and many offer a dividend, which is a portion of their profits sent directly to shareholders.

Large caps may not be capable of large-cap stocks, but they offer less risk. Similarly, a large share of stock market indexes belongs to a few large-cap corporations: Eighty percent of the S&P 500 is made up of large-caps, as is the half of the Dow Jones Industrial Average (the other half is even larger), which makes large-caps easily tradable as well as a popular vehicle of many institutional investors.

What Is Market Cap?Where Are Large Caps Fitting In?

Investors benefit from a market cap to evaluate what a company is worth, giving them a simple way to compare companies with different share prices.

To calculate a company''s market cap, here''s all you need to do: multiply the actual price of one share by the number of outstanding shares.

Voici le total of stocks categorized by market cap:

CategoryMarket Capitalization

Mega-Cap

$200 billion and greater

Large-Cap

$10 billion$200 billion

Mid-Cap

$2 billion$10 billion

Small-Cap

$250 million$2 billion

Micro-Cap

$50 million$250 million

Mega-Cap

$200 billion and greater

Large-Cap

$10 billion$200 billion

Mid-Cap

$10 billion worth of $2 billion

Small-Cap

$250 million$2 billion

Micro-Cap

$50 million$250 million

Mega-Cap

$200 billion and more

Large-Cap

$10 billion$200 billion

Mid-Cap

$2 billion$10 billion

Small-Cap

$250 million$2 billion

Micro-Cap

$50 million$250 million

Although large-cap corporations aren''t as big as mega-caps, there are still many more,and some say that smaller-caps still have room for growth.

Why Are Large-Cap Stocks Less Volatile?

No stock is immune to Wall Streets gyrations: All stocks rise and fall in accordance with global economic conditions, such as inflation or recession; most every stock will enjoy upward appreciation during a bull market, and no stock is immune to extreme selloffs if they become stuck inside an asset bubble.

TheStreet Dictionary Terms

What Is a Large-Cap Stock?Definition, Valuation, and Risk Level

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As an investment, investors may consider a stock market''s size and value to see how risky it is. Large-caps have both size and valuation on their side, but they often make for some of the most safe investments outside of fixed-income securities.

Three reasons are found to be true:

Large cap companies are considered a popular investment option for many investors, and they have a high level of liquidity, which allows stock to be purchased and sold quickly.

All of these factors will cause reduced volatility.

When Do Large-Cap Stocks Do Well?

Many times, investing involves risk and rewards.

Small-cap businesses have the potential to expand and expand, albeit more risky. Some investors believe that investing in larger corporations provides the best possible advantage.

But how much risk is an investor willing to take for the chance of a bigger profit? Just as small-caps demonstrate potential for skyward growth, they may just as quickly see their gains fall when the market heads south.

Large-caps are on the other hand more established enterprises that have demonstrated stable growth, therefore, although the reward might not be as juicy, they generally have significantly lower risk profiles, making them an attractive investment at almost every stage of the market cycle.

Are Large-Caps Overvalued?

How do you know if a large-cap is overvalued? Not all stocks have more time to run. Investors should always keep an eye on stock fundamentals and take into account a company''s price-to-earnings ratio and enterprise value, both of which measure current share prices with earnings.

How can I get large-cap stocks?What Are Some Large-Cap Stocks to Buy Now?

Large-cap enterprises may be purchased as part of a mutual fund or in an exchange-traded fund that tracks a stock market index.

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