Large-cap stocks -- that is, companies with a market capitalization of at least $10 billion -- offer investors a great way to put their money to work in equities while reducing the volatility that tends to come with owning their smaller peers. And while many people tend to correlate that greater volatility with a potentially larger financial reward, they also tend to forget that all too often, the biggest winners tend to keep winning.
So we asked three top Motley Fool contributors to each pick a large-cap stock that they believe you would be wise to buy right now. Read on to learn why they like Walt Disney (DIS 0.18%), Royal Dutch Shell (RDS.A) (RDS.B), and Take-Two Interactive (TTWO 0.78%).
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The perfect time to entertain buying this industry giant
Steve Symington (Walt Disney): After hitting a fresh 52-week high early last month, shares of Disney have pulled back around 7% on the heels of the entertainment giant's solid -- but slightly weaker than expected -- third-quarter 2018 results. But there are a number of reasons to believe that this drop could be a fantastic opportunity to open or add to your Disney position.
For one, in late July shareholders approved the company's pending acquisition of most of the assets of 21st Century Fox (FOX) (FOXA), paving the way for the $71.3 billion deal to be completed by early next year. As if it wasn't enough that Disney already has its namesake studios and TV networks, Marvel Entertainment, Lucasfilm, and Pixar, the Fox purchase will add enviable film properties to its repertoire, including Marvel's X-Men, Deadpool, and Fantastic Four; TV series ranging from This Is Us to Modern Family and The Simpsons; TV networks including FX, Fox Sports Regional Networks. and National Geographic; a controlling stake in Hulu, and the Star media conglomerate in India.
What's more, Disney Chairman and CEO Bob Iger has confirmed that early subscription growth for the recently launched ESPN Plus streaming service has exceeded expectations. And Disney is still on track for a late 2019 launch of a new Disney-branded streaming service that could rival the likes of Netflix over the long term.
With Disney stock now trading at a reasonable 14.8 times this year's expected earnings, I think now is a great time to buy.
Massive cap beats large cap
John Bromels (Royal Dutch Shell): If it's large you're after, you can hardly go wrong with big oil behemoth Royal Dutch Shell. Everything about the company is big. Its dividend yield is big at 6%, the best of its peer group. Its annual revenue of about $350 billion is one of the highest in the world. And right now, the company is posting big earnings, thanks to the price of oil, which has soared over the past year.
Just take a look at Shell's most recent quarter, Q2 2018, in which it announced net earnings of just over $6 billion -- a 291% increase over the year-ago quarter -- and the best free cash flow it's seen in four years. And it's going to pass some of that pile of cash on to shareholders in the form of $25 billion in share buybacks by 2020. With oil prices looking likely to remain high, and the market for liquefied natural gas -- in which Shell has made a significant investment -- continuing to grow, Shell seems likely to outperform.
But the stock market doesn't seem convinced. Since Shell's quarterly earnings release, its stock has dropped by about 7%, even as Brent crude prices rose above $75 per barrel. This looks like a mispricing by the market, and it makes now a great time to pick up shares in this massive outperformer.
Still room to level up
Keith Noonan (Take-Two Interactive): As with other major video-game publishers, Take-Two is benefiting from tailwinds that have bolstered the industry over the past decade.
TTWO Market Cap data by YCharts
Players are buying games directly from publishers through digital downloads, cutting out brick-and-mortar middlemen such as GameStop and Walmart and boosting margins. Gaming enthusiasts are also spending record amounts on in-game virtual goods that are cheap to create and almost free to reproduce -- creating another positive margin catalyst. However, Take-Two's valuation has grown more than that of any other publisher since 2010, because its game Grand Theft Auto V has been a massive hit that's perfectly dovetailed with these broader industry trends.
No other video-game franchise has been as consistently dominant as Grand Theft Auto, and there are no signs that the property is running out of gas. It's been one of the most popular gaming properties in the world since the release of Grand Theft Auto III way back in 2001, and the series' most recent release is the most successful in franchise history, having shipped somewhere in the neighborhood of 100 million copies and still going strong. Despite releasing in 2013, GTA V was America's second-best selling game in July, and its online mode continues to thrive and bring in high-margin in-game item sales.
With that kind of incredible performance, Take-Two is in no rush to get the next series installment out the door, but shareholders can count on its being a huge hit when it arrives.
The company is also making progress on its goal of releasing more blockbuster games. With Red Dead Redemption 2 releasing this year and tracking to be a major hit, a secret triple-A game set for release in 2019, reliable sports franchises such as NBA 2K and WWE 2K making annual appearances, and a bigger push into mobile, the company's product pipeline is very promising. Take-Two has already been a huge winner, but it still has room to level up.
Bigger is better
Of course, we can't absolutely guarantee that these three businesses will go on to deliver outsize returns or beat the market. But between Disney's acquisition of Fox and streaming efforts, Royal Dutch Shell's hefty dividend and mispriced stock, and Take-Two's enduring games and impressive pipeline, we think chances are high that they'll do exactly that. And investors would do well to put their money to work accordingly.
