Small-cap companies can be exciting. (What's market capitalization?) The companies, still modest in size, hold the possibility of very rapid growth. Often undiscovered by Wall Street or not-yet invested-in by mutual funds, there can be a (profitable) thrill in finding the next big thing before others do. Our Fool analysts pay close attention to small companies in both our Rule Breakers and Hidden Gems newsletters (which you can try for free), among other places.
But let's not forget large-cap companies, shall we? Because these days, while some are dismissing the group, many other folks are finding favor with them, expecting solid appreciation over the coming years. In a MarketWatch article, John Burton pointed out that though large-cap stocks gained 7.6% in 2004 and 28.7% in 2003, large-cap growth mutual funds have seen $9 billion in outflows in 2004. As a sign of growing interest, he observed that, "One unusual but meaningful measure for large-cap growth stocks is that value-fund managers have been scooping up fallen growth angels such as Home Depot
In BusinessWeek in January, Bill Gerdes wrote positively of "megacaps" -- those big, blue-chip firms in the S&P 100, noting that they're expected by some to do well in the near future. The median market capitalization for the S&P 100 is $31.6 billion, considerably higher than the S&P 500's $10.4 billion. Examples of member firms include General Dynamics
But Gerdes also cited Sam Stovall, chief investment strategist of Standard & Poor's Equity Research Services, who was somewhat cautious, noting higher volatility and lower earnings potential in the megacaps, compared with their still-pretty-big S&P 500 brethren. Stovall prefers regular large caps over the megacaps.
What does the Fool think about all this? Well, this Fool takes these projections with a grain of salt. Here's why:
- Projections are often wrong. No financial analyst has anywhere near a perfect record.
- Predictions often differ. One expert will pooh-pooh a certain sector, while an equally impressive expert may have great expectations for it. Whatever opinion you may want to find, you're likely to find it somewhere.
- What matters most about a company you're considering investing in are factors such as its financial health, competitive position, growth rates, current valuation vs. intrinsic value, and the like -- not its market cap.
That said, whether you want to (a) seek out large or small companies, (b) seek out large and small companies, or (c) just seek out the most compelling investment opportunities you can find, we can help you. Check out our generous and growing-daily list of Commentary articles, many of which highlight promising companies.
For more detailed analysis of companies big and small that have greatly impressed our analysts, grab some free samples of our investing newsletters, each of which has a different investing focus. For a limited time, try our Rule Your Retirement newsletter for free and get a free copy of our book Money After 40.
Longtime Fool contributor Selena Maranjian owns shares of Home Depot and Wal-Mart.