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3 Top Large-Cap Stocks to Buy in February

By James Brumley - Feb 2, 2021 at 7:15AM

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A trio of great stock picks are hiding right in plain sight.

Small and undiscovered companies typically offer their shareholders more upside potential than bigger names do. But the recent price volatility dished out by GameStop and AMC Entertainment is a not-so-gentle reminder to ordinary investors that smaller names can be tricky to trade. The bigger the company is, the greater its informational transparency tends to be. They're always under a microscope.

With this in mind, large-cap stocks Citigroup (C -0.06%), Adobe (ADBE 1.19%), and General Electric (GE -0.65%) are among the market's best bets right now. Investors as a group still may not fully appreciate them. But at least all the relevant information needed to make an informed investment decision is readily accessible.

Here's what the market isn't quite seeing -- yet -- with each of these large-cap stocks that makes them a buy in February.

Clock with hands labeled Time to Buy

Image source: Getty Images.

1. Citigroup

For the most part, bank stocks haven't participated in the broad market's recovery from March 2020's bottom. Citigroup is no exception to this dynamic. While its price is up nearly 100% since last March's low, it's also still down more than 20% from last February's peak. Uncertainty as to the true fiscal damage the pandemic has inflicted is holding shares back, and low interest rates are bolstering investors' concerns.

Citigroup is mostly holding up against the headwind, though, if last quarter's numbers are any indication.

Yes, the fourth quarter's top line not only fell 10%, but it also fell short of expectations. That's the only real soft spot of the quarterly report, though. Earnings of $2.08 per share easily beat estimates of $1.36, and only fell 3% from the year-ago comparison of $2.15 per share. Most importantly, the big bank dialed back the amount of reserves set aside to cover loans going into default. Granted, Citigroup only released $1.5 billion of these earmarked funds, still leaving it with $25 billion worth of loan-loss provisions. It's still an encouraging step, however, given how the echoes of the coronavirus contagion's landfall are still ringing.

The clincher: In that, the profitability of lending is directly linked to interest rates (the higher the rate, the more profitable the loan), the record-low interest rates we've seen of late are seriously crimping banks' lending income. However, rates may be close to moving higher, and even sooner than you think. The Mortgage Bankers Association estimates 30-year mortgage rates, for instance, will average around 3.4% this year, well up from their current level of around 2.9%. That small difference is a big deal when you're the lender.

2. Adobe

You may know Adobe as the company behind the PDF file, or a popular digital-photo improvement software. Both are products the company offers, to be sure. But Adobe is so much more than that these days. The company is now neck-deep into software suites targeting enterprises in need of one-stop-shop solutions. Its Experience Cloud, for example, lets a client company build a web presence and then customize each individual customer's web experience. Creative Cloud allows Adobe's clients to create and manage images, videos, and even digital media for use in a virtual reality environment.

Adobe's products are well-respected, but that's not the core reason an investor may want to own this stock. Far more compelling is the way Adobe is selling it. Creative Cloud and Experience Cloud are software-as-a-service suites, meaning rather than outright buying a box with a one-time installation disc in it, the company rents month-to-month access to its software at a nominal fee. The end result is reliable revenue -- and revenue growth. A quick look at 2020's projected results verifies it. Despite the disruption caused by the COVID-19 pandemic, last year's revenue improved year over year to the tune of 15%, prompting profit growth of 30%. Analysts expect similar growth this year and next.

Despite this resilience, the rebound being mustered by Adobe stock in the middle of last year petered out in September. The stock's gone nowhere since then, in fact, probably because of valuation concerns -- Adobe shares are trading at more than 40 times their past and projected earnings. You have to pay for quality, though. This five-month stall is ultimately a buying opportunity.

3. General Electric

Finally, add General Electric to your list of large-caps to buy in February.

It's not a story that needs much in the way of retelling. Years of misguided decisions finally started taking a toll in 2017, and the selling didn't stop until 2019. Then shares simply moved sideways for a couple of years while investors continued waiting for GE to figure out how to fix itself. It finally has -- mostly. While there's still some proverbial painting and patching left to do, the company is looking for between $2.5 billion and $4.5 billion worth of industrial free cash flow this year. That's a wide range, but even the low end of that outlook would be a marked improvement of recent cash flow figures.

Yes, it's a bold outlook given last year's miserable results. Air travel shutdowns and Boeing's 737 MAX woes led to a 33% dip in revenue for GE's aviation arm. Its renewable energy and healthcare units also felt headwinds in 2020. These headwinds are largely temporary, however, and we're seeing progress from the one unit that was General Electric's biggest liability before COVID-19 up-ended 2020. That's the power division, which makes electricity-generating turbines. Revenue slumped 6% year over year for Power, but it was flat in Q4 while orders grew 26% year over year. That's the second consecutive quarter we've seen a glimmer of hope from the power arm.

Things won't be stellar this year or next, but they'll be better. Analysts are calling for single-digit sales growth through next year, which should lead to strong double-digit earnings growth. The stock's nearly doubled in value since September, but it is still priced below last year's peak price as the market isn't yet pricing in its plausible future.

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Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
$75.25 (-0.65%) $0.49
Citigroup Inc. Stock Quote
Citigroup Inc.
$49.75 (-0.06%) $0.03
Adobe Inc. Stock Quote
Adobe Inc.
$399.09 (1.19%) $4.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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