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Large-Cap Stocks: Huge, Still Growing, and Kicking Out Cash

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some large-cap stocks to your portfolio but don't have the time or expertise to hand-pick a few, the Vanguard Large-Cap ETF (NYSEMKT: VV  ) could save you a lot of trouble. Instead of trying to figure out which large-cap stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual-fund cousins. This ETF, focused on large-cap stocks, sports a relatively low expense ratio -- an annual fee -- of 0.1%. It yields about 2%.

This ETF has performed reasonably, but it's also very young, with just a few years on the books. It underperformed the S&P 500 in 2008 and 2010, though it beat it substantially in 2007 and 2009. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why large-cap stocks?
Large-cap stocks can add some ballast to your collection. Many may not grow so rapidly as their smaller counterparts, but having reached their current size, they likely have some strong assets and features. And some can grow quite briskly, too.

More than a handful of large-cap stocks had strong performances over the past year. Bank of America (NYSE: BAC  ) , for example, surged 47% despite having "one of the longest corporate rap sheets" among big banks in recent years. (For example, it was recently convicted of civil fraud, which may cost it several hundred million dollars.) Still, bulls will point out that there's good along with the bad, and that with a forward P/E ratio near 11, it still has room to grow. In its last quarter, its mortgage banking business shrank some, but credit quality improved, and its bottom line was well in the black.

General Electric (NYSE: GE  ) popped by 27%, is near a 52-week high, and yields 2.8%. Sitting on more than $130 billion in cash and equivalents, GE has been focusing more on its industrial operations and less on its financial ones, and it has been diving into emerging technologies with great success. The conglomerate has its powerful tentacles in mining, liquefied-natural-gas processing, undersea drilling, and more, as its international operations grow even more. Its third quarter offered growing margins, a big backlog of orders, and double-digit growth aims for its industrial business. Many see General Electric stock as a solid value.

PepsiCo (NYSE: PEP  ) gained 24% and yields 2.7%. There's much more to PepsiCo than just beverages, as it's a salty-snack giant, with snack sales growing more briskly than drink sales. (Its brands are familiar to almost any American: Frito-Lay, Cheetos, Doritos, etc.) Bulls like the company's innovation and growth prospects in China, while bears wonder whether Coca-Cola is the better beverage buy. Meanwhile, activist shareholder Nelson Peltz has suggested that PepsiCo acquire Kraft Foods spinoff Mondolez International and then separate its drinks and snacks businesses.

Other large-cap stocks didn't do quite so well over the last year but could see their fortunes change in years to come. Philip Morris International (NYSE: PM  ) , for example, gained 5% and yields 4.1%. With domestic tobacco companies challenged by tightening regulations, rising taxes, and a shrinking smoking base, many have assumed that Philip Morris is the best bet in tobacco. But in the third quarter, it posted the weakest results, with volume taking a sizable drop and a strong dollar reducing its earnings. Bulls like its innovation and share buybacks.

The big picture
If you're interested in adding some large-cap stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

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10/21/2016 3:59 PM
VV $97.99 Down -0.05 -0.05%
Vanguard Large-Cap… CAPS Rating: *****
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GE $28.98 Down -0.09 -0.31%
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PEP $105.62 Down -0.25 -0.24%
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PM $96.31 Up +0.74 +0.77%
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