If you follow investment news, you likely agree with my headline. Everybody and their mother seems to be talking about large-cap stocks. Sure, I might be a bit biased since I've been an awfully broken record on the subject.
A Bloomberg article yesterday continued the chorus. The article started with the thoughts of Michel Moreno, the CEO of oil-services company Moreno Group, saying that he's putting money into well-known, blue-chip stocks. It went on to note that Grantham, Mayo, Van Otterloo guru Jeremy Grantham sees the largest U.S. stocks, including Coca-Cola
So surely large caps must be soaring? Nope. Not even close. For now, the "big ups" to big companies is all lip service. Investors flocked to small caps in 2010, pulling $77 billion out of large-cap mutual funds and sending the Russell 2000 index to a 27% finish versus a 13% gain for the S&P 100. And small-caps just keep going.
But it's pretty plain to see that bargain opportunities for investors that care about valuation are harder to come by in the smaller end of the market. The average trailing and forward price-to-earnings ratio for the 100 largest U.S.-traded stocks is 17.5 and 13.5, respectively. For stocks in the $500 million to $2 billion range, the multiples are 30 and 23.3.
The stocks we're talking about here are hiding right in plain sight. In addition to the two mentioned above, there's Microsoft
So what's the hold-up then? It's that Mr. Market doesn't work on my, or Michel Moreno's, or Jeremy Grantham's schedule -- he does things when he darn well feels like it. Perhaps he'll continue to ignore large caps for a while longer, but I've put my money where my mouth (and digital articles) is and will be ready for him when he does come to his senses.