While small-cap companies generally offer better growth prospects than their large-cap counterparts, they also expose investors to more volatility. Then again, long-term stability and predictable cash flows can be pretty great rewards themselves -- and large-cap stocks representing mature businesses harbor some spectacular bounties for investors who know where to look.
The key is finding great businesses with a track record of beating the S&P 500 that offer a respectable combination of growth and income. We recently asked three contributors at The Motley Fool for the best large-cap stocks to buy in the month of March. Here's why they chose NextEra Energy (NEE -0.87%), ABB (ABBN.Y 0.97%), and Alphabet (GOOG 9.63%) (GOOGL 9.94%).
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A renewable energy no-brainer
Maxx Chatsko (NextEra Energy): It's pretty difficult to argue with NextEra Energy as the ultimate renewable energy investment of the last two decades. Shares have registered a dazzling 1,630% total return (stock performance plus dividends) since the turn of the century thanks in large part to management betting correctly on the long-term viability of onshore wind power years ago. While investors cannot expect the $91 billion company to deliver a similar return in the next two decades, its impeccable track record makes it a great stock for any portfolio.
Well, there's that -- and the fact that its renewable energy binge is far from over. NextEra has embarked on multiple ambitious projects to retain its global leadership in renewable energy. Its primary electric utility, Florida Power & Light, is currently toiling away at its "30 by 30" vision, which will see it install 30 million solar panels in the state by 2030. Those panels will have a capacity of 10,000 megawatts. The entire state of Florida has around 2,159 megawatts of solar today.
Meanwhile, its power generation subsidiary, NextEra Energy Resources (NEER), is the world's largest producer of electricity from the wind and sun. It expects its backlog of renewable energy projects to swell to 40,000 megawatts by 2020, which will provide plenty of assets to sell to power generators and utilities across the United States in the coming years. The U.S. Energy Information Administration estimates wind and solar contributed 10% of the nation's electricity in 2018, and expects that to grow to 13% by 2020.
That will help NextEra Energy grow adjusted EPS an estimated 7% per year through 2021. Management expects its dividend to increase 13% by the end of 2020. The steady growth is made possible by the company's massive size, which provides plenty of cash flow to invest in growth. Rinse, repeat.
It might one day become an unfair advantage in the eyes of regulators, but right now NextEra Energy is keeping the American power sector on track to meet its long-term climate goals. Given the results to date, why wouldn't investors want a piece of the action?
Check out the latest earnings call transcript for NextEra, ABB, and Alphabet.
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Investing in the future of industries
Neha Chamaria (ABB): Shares of ABB have lost nearly 20% in just six months, and it's odd that the market doesn't see value in the Swiss conglomerate yet. If there's one industrials play on futuristic technologies like automation and robotics, it's ABB.
Part of the weakness in ABB shares might be because the company's latest numbers for its fourth quarter failed to live up to analysts' expectations. There's nothing wrong with the company, though. ABB wrapped up a strong fiscal 2018 with orders and revenue growing 8% and 4%, respectively. Robotics and motion was the strongest segment with 12% growth in revenue -- encouraging given that it is also a high-margin business for ABB. Its other divisions, electrification products and industrial automation, performed well, too.
The biggest development of 2018, however, was ABB's decision to divest its power grids business. The segment has been a laggard in ABB's portfolio -- one of the biggest reasons for its margins trailing those of its peers. While the divestment is still months away, ABB is restructuring its portfolio further to become more business-to-business focused, catering to digital industries. Think the Internet of Things, robotics, and industrial automation. In February, ABB also partnered with Dassault Systemes to expand its reach into factory automation and robotics, as well as smart buildings.
I believe its strong foothold in a growing industry, encouraging medium-term goals, and strong financials that support a hefty dividend yield of 4.3% make a compelling investing thesis for ABB's stock at current prices.
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A is for ambitious
Chris Neiger (Alphabet): You likely already know Alphabet as the parent company of Google, the tech giant that gives users nearly every kind online service known. But there's far more to this massive company than just email, search results, and its Android platform.
First off, Alphabet is the top digital advertising platform in the U.S. The most recent estimates from eMarketer project that Google will hold more than 37% of the digital ad market this year. Meanwhile, rival Facebook will grab the next largest share with 22%. The great news for Alphabet is that total digital ad spending in the U.S. is expected to jump 19% this year, to $129.3 billion -- and over the next three years, digital ads will account for more than two-thirds of all media ad spending in the U.S.
While ads served up to users are Alphabet's bread and butter, the company is also looking at other revenue streams. That's a smart move, as online ad companies have faced increased scrutiny thanks to Facebook's stumbles. One key area of growth Alphabet's looking to is cloud computing.
The public cloud market is dominated by just three players -- Amazon, Microsoft, and Google -- and is expected to grow into a $278 billion market by 2023, up from $145 billion in 2017. Alphabet's Google holds just 9.5% of the market right now, but that's up from 7.6% at the same time last year. Alphabet will likely benefit as more companies -- large and small -- look to offload their data center needs to the cloud. And with cloud computing growing into such a massive market, Alphabet doesn't need to be the top player in the space to benefit.
Additionally, Alphabet is preparing for the future by placing huge bets on burgeoning tech trends, like autonomous vehicles (AVs). The company's self-driving-vehicle subsidiary, Waymo, has logged more than 10 million miles of autonomous driving since its inception and launched one of the first commercial autonomous ridesharing services at the end of 2018. The company is looking to tap into the $7 trillion (by 2050) passenger economy with self-driving services and technology -- and its current moves are making it an early leader in the space.
With the company dominating advertising, benefiting from the massive cloud computing market, and positioning itself as a leader in emerging technologies like AVs, Alphabet is one of the single best large-cap stocks for investors to own.
