Large Cap Stock Definition and How to Invest

Key Points

• Investing in large-cap stocks can offer several advantages.
• They have higher liquidity and trade on major exchanges like the New York Stock Exchange. The company may also have significant cash flow and earnings power. 
• You enjoy the stability of owning shares in a well-established business. 

Key Points

• Investing in large-cap stocks can offer several advantages.
• They have higher liquidity and trade on major exchanges like the New York Stock Exchange. The company may also have significant cash flow and earnings power. 
• You enjoy the stability of owning shares in a well-established business. 

If you've been investing in the stock market, you've likely heard that large-cap stocks can be an essential part of your portfolio. You may also wonder what they are and how to best invest in them. 

Large-cap stocks have market values of more than $10 billion and boast some of the world's most recognizable names and brands. You encounter their products and services every day. Because of their size, they also tend to offer more stable returns than other stocks. 

But investing in large-cap stocks also carries its fair share of risks. Read on for a large-cap stock definition and to find out what makes large-cap stocks so attractive. You'll also learn how to make investing in large-cap stocks work for you, your goals and your portfolio.

What Does Large Cap Stock Mean? 

When it comes to stocks, "large cap" (or "large capitalization") refers to companies whose market value is greater than $10 billion. This usually means the company's stock is liquid, i.e., investors can buy and sell it without much affecting the stock price. Large-cap stocks are often safer investments. This is because they offer more stability and less volatility. But because of their size, their returns may be lower and their growth rate slower.

Large Cap Companies, Explained

With market values of over $10 billion, large-cap companies are usually well-established and have a large, loyal customer base. Large caps also tend to pay higher dividends than smaller businesses. This can make them ideal if you're looking for income-generating investments. Large-cap stocks are also less volatile than their small-cap counterparts. They can be attractive if you're an investor prioritizing preserving your capital.

Market Capitalization, Explained

Market capitalization — often referred to as "market cap" — measures the size of a particular stock or company. You can calculate market capitalization by multiplying the total number of shares outstanding by the current market price per share. This measures how much a company is worth. It compares its value against other companies in the same sector. Market capitalization is either large-cap (market value greater than $10 billion), mid-cap ($2 billion to $10 billion) or small-cap (less than $2 billion). Larger companies tend to pay higher dividends and are more stable because of their size but also have slower growth rates.

Micro Caps

Micro caps are stocks with market values of less than $250 million. They often fall under the radar of many investors. The smallest companies are usually more volatile and offer higher potential returns than large-cap stocks. They also carry greater risk. Use an elevated level of caution when investing in micro caps.

Small Caps 

Small-cap stocks have market values of between $250 million and $2 billion. These companies are less established but may have higher growth potential. They also offer more attractive opportunities for gains since investors do not follow them as closely. But these stocks can also be riskier due to being more prone to swings in share price. The companies may also have higher debt or other liabilities.

Mid Caps 

Mid-cap stocks have market values of between $2 billion and $10 billion. They're more established than small-caps but smaller than large-cap stocks. Mid-cap stocks on MarketBeat offer a middle ground between the higher returns and risk of small caps and the lower returns and risk of large caps. They can offer attractive growth opportunities with some stability.

Mega Caps 

Mega caps are stocks with market values of more than $200 billion. They include the world's largest and most well-known companies and tend to offer the lowest volatility of all stock types due to their sheer size and large customer base. Yet these stocks may offer lower returns than mid- or small-cap stocks. If you're seeking steady capital growth and minimal risk, consider mega-cap stocks for investors. 

How to Invest in Large-Cap Companies

Investing in large-cap stocks can offer several advantages. They have higher liquidity and trade on major exchanges like the New York Stock Exchange. By investing in large caps as an investor, you enjoy the stability of owning shares in a well-established business. The company may also have significant cash flow and earnings power. 

Since these companies are so big, they often carry more weight in the stock market. They also offer some insulation from downturns or economic slowdowns. Because so many investors have stakes in large-cap businesses, the stocks are less volatile and tend to have a larger average rate of return. Their size also means they can pay higher dividends than other types of stocks, making them attractive if you're an investor looking for a stable income source. 

Learning how to invest in large-cap stocks begins with research. In the steps below, you'll learn how to investigate companies, choose stocks and monitor your portfolio to make the right large-cap investment choice.

Step 1: Research the company.

When investing in large-cap stocks, as with any investment, your first step is to do your due diligence. Look at the company's performance over the past five years. Examine its current financial situation. Consider the outlook of the sector or industry the company operates in and how the company compares to its peers. When you compare technology stocks, you can see how individual companies measure up within that sector.

Step 2: Perform analysis.

Before investing in a large-cap stock:

1. Analyze the company's financial statements.
2. Look for any trends in its revenue growth and profits, as well as any changes in cash flow or other metrics over time.
3. Pay attention to the company's dividend payout ratio and the percentage of earnings returned to shareholders. This will help you understand how much of its profits are being reinvested into operations or used to pay out dividends.

Step 3: Look into your investment options.

Once you decide which company to invest in, it's time to research your options. There are several ways to gain exposure to large-cap stocks. You can buy individual shares from the stock exchange. You can also invest in a mutual or exchange-traded fund specializing in large-cap stocks. If you're looking for direct ownership of the stock, then buying single shares from the exchange is likely your best bet. But if you're looking for broader diversification, you might opt for a mutual fund or ETF. These pooled funds offer easy, relatively low-cost access to various domestic large-cap stocks. 

Step 4: Set investment goals.

Next, consider your investment goals. Are you looking for long-term capital gains? Or do you want a steady income stream? Knowing what kind of portfolio you want will help you decide which stocks to buy. Consider how long you plan on holding onto your investments, which could affect your buying and selling decisions.

Step 5: Track your portfolio.

Once you start investing in large-cap stocks, you should monitor your portfolio closely and rebalance it when needed. This is especially important if the stock market is volatile. A volatile market may cause some of your investments to become overvalued or undervalued. Rebalancing helps keep your portfolio on track with its original goals and reduces your risk.

Example of a Large-Cap Company

Apple Inc. is a large-cap company that has become one of the most instantly recognizable and valuable worldwide. Listed on the NASDAQ stock exchange, it reached a market capitalization of over $3 trillion in 2022, making it one of the world's largest publicly-traded firms. Founded in 1976 by Steve Jobs and Steve Wozniak, it had its initial public offering in December 1980. Since then, Apple has grown to revolutionize the way consumers use tech and consume media. It boasts signature products like the iPhone, iPad, MacBook and Apple Watch.

Apple owes much of its growth to its commitment to innovation and the improvement of its products. This strategy has allowed it to remain profitable and competitive. Apple also boasts extraordinary brand recognition. Many consumers see it as a go-to partner for the latest technology. Furthermore, investors have succeeded with Apple shares due to the company's steady performance and consistent returns. It exemplifies how large-cap stocks can be both stable and rewarding investments.

Are Large-Cap Stocks for You?

Large-cap stocks can be a profitable buy for any savvy investor. They can help diversify your portfolio and generate consistent returns. They can also allow you to enjoy the long-term growth potential of the world's most well-established companies. 

Of course, you'll need to research and analyze to identify the stocks best suited for your goals. Setting clear objectives and monitoring your portfolio will help maximize your return on investment. With careful analysis and planning, large-cap stocks are an effective tool for building wealth.

FAQs 

Large-cap stocks are shares of publicly-listed companies whose market capitalization (value) is higher than $10 billion. They tend to have a long track record of success and high brand recognition, making them attractive investments. Want to learn more about the large-cap stock definition? Read on.

What is considered "large cap?"

What is a large-cap stock? "Large-caps" are companies with over $10 billion market capitalization. This makes them some of the biggest and most well-established industry players.

What does large- vs. small-cap mean?

Small-cap stocks are shares of smaller companies with market capitalizations between $250 million and $2 billion. Large-cap stocks are those with market caps of over $10 billion. Investing in small-cap stocks offers a higher potential for growth and higher risk. Large caps, meanwhile, tend to be more predictable in the long term. Investing in small and large caps can help you achieve a complete portfolio with stability and growth.

What are large- and mid-cap stocks?

Large-cap stocks are those with market capitalizations of more than $10 billion. Mid-cap stocks have market caps between $2 and $10 billion. Mid-cap stocks tend to be more established and predictable than small-cap stocks. They have the potential for higher returns and faster growth than large caps. Mid caps are a smart option if you're looking for stability in your portfolio since they offer a good chance for future growth.