As investors, we all seek the most profitable places to put our money. Many of us focus on up-and-coming companies with rich opportunities for expansion. It's tempting to consider long-established businesses stodgy or uninteresting -- to toss them by the wayside in favor of start-ups with the potential, however theoretical, to make huge piles of cash.
As a result, many large-cap stocks trade at values far lower than their possible future gains merit. The market's fickle fancies aside, large-cap stocks maintain steady cash flows backed by consistent net income, as the table below demonstrates.
Most recently reported fiscal year
Previous fiscal year
Source: Capital IQ, a division of Standard and Poor's. All figures in millions. Fiscal years end June 30 for Microsoft, Dec. 31 for Google, and Jan. 31 for Wal-Mart.
Microsoft, for example, is taking a hit from Apple's
But I think this assumption is arguably inaccurate, or at the very least premature. Although individual consumers certainly love Apple, Microsoft remains the accepted standard in corporate computing. And while that may change someday, mature investors will see that such a change is far from imminent and won't come suddenly.
Moreover, Microsoft still has potential for growth in areas outside the consumer market. As the Fool's Million Dollar Portfolio team has suggested, Microsoft could find opportunity -- and profit! -- by expanding and exploring new concepts, such as cloud computing.
Likewise, investors often dismiss Google for its supposedly declining growth potential. Thanks to its rapid expansion in the past and its current sustained control of the online advertising market, we're often deluded into thinking that Google simply "cannot" keep growing. Yet even though it's a huge company, Google's strong focus on research and development is still proving profitable.
Even outside the tech sector, industry-leading companies deal with similar problems. As the world's largest retailer, Wal-Mart can look too big to grow, despite its movement toward international markets. Even I can admit that its size is scary -- but I'd be willing to bet my left hand (and I'm left-handed!) that Wal-Mart can keep growing for the foreseeable future.
It's tempting to think that start-ups will provide the market's biggest gains, since they have so much room to run. But don't discount the giants in any sector, either. If it's a lucrative business with growth potential, there's no reason why any huge company can't bring investors an equally enormous profit.
Marissa Gitler does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Apple, Wal-Mart, Microsoft, and Google. Motley Fool newsletter services have recommended buying shares of Google, Microsoft, Wal-Mart, and Apple; creating diagonal call positions on Microsoft and Wal-Mart; and creating a bull call spread position on Apple. 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.