It's a simple fact, small-cap stocks can deliver performance that large-caps can't.

While a single time period isn't conclusive evidence, the past decade provides a pretty vivid illustration of the extent to which small-caps can outpace their larger brethren. Here are the decade's top five performers among companies with at least a $100 million market cap at the beginning of 2000:


January 1, 2000 Market Cap

Stock Appreciation

XTO Energy

$442 million


Southwest Energy

$164 million


Randgold Resources

$128 million


Range Resources

$120 million



$108 million


Source: Capital IQ, a Standard & Poor's company.

The average market cap of the top 100 stocks on the list is just over $1.5 billion and there are only four companies in that 100 with a market cap above $10 billion.

It would seem that small caps are your absolute best bet.

Not so fast
I had few doubts that small caps could deliver absolutely scorching results, but I was curious if larger companies were really guaranteed to be dud investments. Lucky for me, the CNN Money website keeps an archive of the past Fortune 500 lists. After calculating returns for some of the largest companies on the 1980 list, I found that many of the biggest companies of 1980 would have been pretty stellar investments.


Fortune 500 Position

Annualized Price Change

Annualized Price Change with Dividends

Value of $10,000 Invested with Dividends

ExxonMobil (NYSE: XOM)





General Electric (NYSE: GE)





Procter & Gamble (NYSE: PG)





United Technologies (NYSE: UTX)





Altria (NYSE: MO)





S&P 500




Source:, Yahoo! Finance.

I have no doubt that there are many stocks of smaller companies that vastly outperformed this group. However, these are hardly results to sneeze at and these companies were hardly hiding from investors back in 1980.

Exxon, for instance, was not only sitting at the top of the Fortune 500 in 1980, but as a company it was already more than 100 years old. And though thoughts of GE today may bring up the uncomfortable slump at the hands of its finance division, back in the '80s the company was at the top of its game. Heck, the legendary Jack Welch was the CEO for most of that decade.

Many of the dominant brands that make Procter & Gamble so successful didn't come out of the blue over the past few years either. Powerhouse brands like Tide, Head and Shoulders, and Pampers had been around for decades by the time 1980 rolled around. Meanwhile, if you were riding an elevator or escalator in 1980, it's very likely it was United Technologies' Otis brand, which had just as strong of a hold on its market in 1980 as it does today.

And if you find it amazing that Altria stock turned $10,000 into $2.5 million, what should be more amazing is that, like all of these other companies, it was front and center for investors back in 1980 with its ultra-successful Marlboro cigarette brand.

But the point is that these companies were huge and well known and still delivered outstanding returns. And the fact is that all of these companies -- with the potential exception of GE, which still needs to figure out its finance division issues -- are still positioned today to deliver strong returns over the next decade.

Keep it simple smarty-pants
Now I don't mean for this to come off as an endorsement of buying any old large-cap stock and expecting that it'll carry you to a tropical retirement. That same Fortune 500 from 1980 also contained some real stinkers, not the least of which was the Tweedledum and Tweedledummer pair of General Motors and Chrysler.

Instead, the point is to remember that there are no bonus points for difficulty when it comes to investing.

For long-term investors, the goal is to build a portfolio of high quality companies that have the potential to deliver attractive returns over a long period of time. If such an opportunity exists in the form of a large, well-known company, why pass it up?

Not someday ... today
Not overlooking large-caps is something that holds true whether we're in an up, down, or sideways market. However, I think it's especially true today.

While the market has mounted an impressive recovery since the lows of last year, many of the stocks of the largest companies have been left behind and are now trading at significant discounts to the rest of the market. Because of the relatively low prices, many of these companies are also sporting dividend yields that investors haven't been treated to in some time.

Health-care giant Johnson & Johnson (NYSE: JNJ), for instance, is currently trading at 13.6 times its trailing earnings and is yielding 3.4%. Chevron (NYSE: CVX), which is currently expected to grow nearly 11% per year over the next five years, is trading at 12 times trailing earnings and yields 3.6%.

Like the companies in the table above, both J&J and Chevron are huge and successful and if they're hiding, then they're both hiding right in plain sight. Both companies also have the kind of business quality and dedication to dividends that could help them deliver significant returns in the decades to come.

But these aren't the only companies that could be "obvious" picks for long-term returns. The investing team at theMotley Fool Income Investor focuses on companies that -- like the ones listed above -- are poised to reward investors for decades to come by sharing their success through dividends.

To make things easier, the team has even cooked up a list of six "buy first" stocks that they think are best bets. If you'd like to check out exactly which companies made this list and browse the rest of the Income Investor recommendation list, you can take a free 30-day trial of the service by clicking here.

Fool contributor Matt Koppenheffer owns shares of Johnson & Johnson, but does not own shares of any of the other companies mentioned. Johnson & Johnson and Procter & Gamble are Motley Fool Income Investor picks. Motley Fool Options has recommended a buy calls position on Johnson & Johnson. The Fool owns shares of Procter & Gamble and XTO Energy. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants ...