This article is part of our Rising Star Portfolios series.
"There's a time and a place for everything."
It might have been your mother, your spouse, or your lawyer, but somebody, sometime, has said those words to you. I've certainly heard them before, but I'd never thought I'd think them myself -- but that's where I am. I'll come out and say it: this just might be the time and the place to invest in large cap stocks.
I love to invest in companies that are small, obscure, disliked -- loathed, even. Frankly, I like my chances in that hunting ground. It's a lot easier to have a different opinion on a stock when there are only a dozen other serious investors even looking at it. I sometimes think of large-cap investing as a hunting contest in which everybody else has machine guns and I have a slingshot.
That said, a number of large cap stocks just look plain old cheap. Here are three I'm considering for my Young Gun Portfolio.
National Grid: Lighting up
Opportunity might be just the word to describe National Grid right now. After the company diluted shareholders to raise $4.6 billion in new capital last year, many investors fled. For new investors, though, the stalwart company just got interesting. That money was raised to fund infrastructure upgrades (is it any surprise that our power grids need upgrading?), and regulators, who control National Grid's rates, are increasingly allowing them to raise prices, in part to fund the investments. The upgrades should make the company's operations more efficient (read: cheaper) in the future, and while we wait for that to play out, investors can sit back and enjoy a whopping 6.1% trailing dividend yield.
Diageo: A toast
The magic of Diageo is in its distribution network, which runs globally. Adding new products to that distribution network is cheap and easy, and the incremental benefits to Diageo are substantial. Yet, despite years of massive free cash flow generation, by my model Diageo's price tag looks pretty reasonable. I still have more work to do, but right now Diageo is near the top of my watch list.
Microsoft: Soft price for software?
The market can leave even behemoths like Microsoft for dead, but the software giant is anything but. Sure, Bing is still bleeding money, and the Xbox hasn't exactly been a cash cow, but sales of Windows and Office brought in over $18 billion in revenue last year each. Microsoft remains dominant in both the operating system and productivity software domains, and at just 10 times free cash flow, I'm taking a second look.
Young Gun hunting big game?
The Young Gun Portfolio definitely has a small-cap bent, but we go where the opportunities are, and at the moment we are feeling like big game hunters. I'll be continuing my research on these companies, and, as always, I'll tell you before I make any trades. You can also easily keep up to date on all Young Gun Portfolio trades and commentary by following along on Twitter.
This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).
Alex does not own shares of any company mentioned. Diageo and National Grid are Motley Fool Income Investor selections. The Fool has written puts on Apple, which is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a diagonal call position on Microsoft, which is a Motley Fool Inside Value recommendation. The Fool owns shares of Apple, Diageo, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.