Every once in a while, great investors step back and view the market from afar. Doing so grounds their strategy and helps them avoid the mistakes that affect us all, such as buying at the height of a bubble or selling at the bottom of a trough.
With this in mind, I created two graphics to help you gain a unique and valuable perspective on the S&P 500. Following these, I present the S&P's best and worst stocks according to size, value, yield, and growth.
1. Market capitalization
Market capitalization is simply the value of a company, index, or market. You calculate it by multiplying the number of a company's outstanding shares by the share price. By adding these up, you can determine the value of an index like the S&P 500 or an exchange like the NYSE.
While the S&P 500's nearly $11 trillion market capitalization is impressive, it alone doesn't tell you much. As a result, I broke it down by sector and then graphed the results.
Source: Finviz.com.
It probably doesn't surprise you that the technology sector has the largest market capitalization in the S&P 500. What's interesting, however, is that both the services and financial sectors have more companies included therein; they just have a lower price-to-earnings ratio.
2. Price-to-earnings ratio
The price-to-earnings ratio, otherwise known as the P/E ratio, is the most commonly referenced valuation statistic. It tells us how much we have to pay for $1 of a company's earnings.
This ratio is calculated by dividing the price of a company's shares by its earnings per share. If a company's earnings are positive, you generally end up with a number between 1 and 100, though companies that are growing aggressively often have P/E ratios well beyond this.
In the chart below, I've graphed the 10-year moving average of the S&P 500's P/E ratio (aka the Shiller P/E ratio). You can use this to gauge investor sentiment (the higher the ratio, the higher the sentiment) and/or as a benchmark against which to assess the value of individual stocks.
Source: multpl.com.
As you can see, the S&P 500's P/E ratio has fluctuated wildly. It reached its all-time high of 44.2 at the height of the Internet bubble in 1999. And it recorded its lowest point of 4.78 in 1920, the same year President Woodrow Wilson won the Nobel Peace Prize for his work ending World War I.
3. Statistical leaders and laggards
Of course, no conversation about the stock market is complete without at least a passing reference to specific securities. I've accordingly included the top and bottom companies on the S&P 500 according to four different categories: size, value, yield, and growth. In it, you'll find benchmarks to test your current holdings against, and even some investing ideas that may make you a more successful investor.
|
Category |
Company |
Statistic |
|---|---|---|
| Largest market capitalization |
ExxonMobil |
$357,658 million |
| Smallest market capitalization |
AK Steel |
$735 million |
| Highest P/E ratio* |
salesforce.com |
604.80 |
| Lowest P/E ratio* |
Tenet Healthcare |
2.16 |
| Highest dividend yield |
Frontier Communications |
12.76% |
| Lowest dividend yield** |
Precision Castparts |
0.08% |
| Highest 5-year sales growth |
First Solar |
121.52% |
| Lowest 5-year sales growth | Lennar Corp. | (26.01%) |
Source: Finviz.com. *For those companies with meaningful P/E ratios.**Excludes those with no dividends.
Foolish bottom line
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