Large-cap stocks can anchor a portfolio.
By definition, “large-cap” refers to stocks with a market capitalization — or share price times shares outstanding — greater than $10 billion. These companies represent a large portion of the U.S. stock market, and investors often use them as anchors in their portfolio. When investing in a large-cap stock, investors can expect transparent financial information, sector leadership and, often, sizable dividends. Amid the current market uncertainty, these leaders offer years of strong performance and have the potential to post outsize gains throughout the rest of 2022. Hailing from industries ranging from consumer electronics and e-commerce to energy and infrastructure, these stocks all boast durable business models that are able to withstand headwinds. With that in mind, here are seven large-cap stocks to buy for 2022.
Apple Inc. (ticker: AAPL)
An iconic designer, manufacturer and retailer of personal technology products and services, Apple hardly needs an introduction. With a market capitalization of $2.8 trillion, it’s the epitome of a large-cap stock. Broadly, pandemic comedowns and rising interest rates have dampened enthusiasm for technology stocks, bringing the broader industry group down about 10% year to date. Meanwhile, Apple has weathered the storm well. In the past year, AAPL has soared by about 40%, and it has fallen by only about 2% since the new year. In mid-March, Arizona launched the first driver’s license and state ID compatible with Apple Wallet, and users can now present the app at Transportation Security Administration locations, with many more states to come. Apple’s years of consistent revenue and profit growth could qualify the company as a value stock, but its continued deployment of sought-after, innovative products still offers the potential for a long-term growth play.
Amazon.com Inc. (AMZN)
Amazon made big news in early March when it announced a 20-for-1 stock split designed to broaden the investor base and $10 billion worth of share repurchases. Amazon’s two main business lines consist of consumer offerings, such as e-commerce and entertainment, and the cloud computing arm Amazon Web Services, or AWS. While online retail has slipped as pandemic restrictions have lifted and inflationary headwinds abound, AWS provides Amazon with solid protection. In 2021, AWS revenue grew 37%, compared to 18% for its North American e-commerce segment, and AWS boasted a 29.8% profit margin versus 2.6% for its North American business. With shares down 13% from their 52-week high as of March 24, now may be the time to buy the dip.
Exxon Mobil Corp. (XOM)
As the Russia-Ukraine conflict continues and demand for oil stays elevated, West Texas Intermediate crude continues to climb, up 20% in the past month as of March 24. For more than a year, oil and gas stocks have grossly outperformed the market, with the S&P 500 Energy Index rising more than 60% in the past year. Operating through upstream, downstream and chemical divisions, Exxon is the largest energy company in the world and has a market capitalization of about $350 billion. Even then, Exxon boasts a modest price-to-earnings ratio of 15 and is up more than 30% since the start of the year. At its investor day in early March, Exxon unveiled targeted annual cost reductions of $9 billion by 2026 through reorganization and streamlining. These “structural cost efficiencies are expected to offset inflation and increase in activity beyond 2023,” says Scotiabank Global Equity Research analyst Paul Cheng.
Caterpillar Inc. (CAT)
With a 97-year history, Caterpillar primarily designs and manufactures equipment for the construction, resources, energy and transportation industries. With supply of global inputs lacking and investment in infrastructure and energy rising, companies will seek dump trucks, backhoes, excavators, engines and other machinery as they expand capabilities. Given Caterpillar’s cyclical relationship with the global industrial economy, this large-cap stock may offer surprising upside. In 2021, higher sales volume sent revenue to $51 billion, up 22% from 2020, and pretax income more than doubled. What’s more, Caterpillar has raised its dividend for 27 consecutive years and offers a dividend yield of 2%, qualifying the company as dividend aristocrat. “We believe CAT’s earning power and free cash flow conversion over this upcoming cycle, supported by solid global gross domestic product growth, continue to merit our overweight rating,” writes JPMorgan research analyst Tami Zakaria.
Costco Wholesale Corp. (COST)
Founded in 1976, Costco has become the nation’s leading operator of membership-only warehouses, offering consumers and small businesses steep discounts on a wide variety of goods from food to electronics. As the world’s third-largest retailer, it boasts 114 million card-holding members and an impressive 92% renewal rate. Offering bulk products stocked on warehouse shelves, Costco uses high-volume purchasing and efficient distribution to maintain better gross margins than traditional retailers. In the fiscal 2022 second quarter, net sales rose 16.1% year over year to $51 billion, and net income hit $1.3 billion. “We believe COST continues to be a core holding given that its unrivaled value proposition (11% gross margins) to its fiercely loyal customer base and global growth opportunity (2-3% annually and likely double the current store base from here) are a rare combination in retail and consumer staples,” says JPMorgan research analyst Christopher Horvers.
Wells Fargo & Co. (WFC)
Wells Fargo is one of the big four U.S. megabanks and has a market capitalization of close to $200 billion. In the past year, WFC has been the biggest climber among top bank stocks, rising more than 30% while maintaining an impressively low price-earnings ratio of about 10. With interest rates rising, banks benefit because income from interest payments increases faster than interest owed to depositors. This difference, known as net interest margin, represents the primary source of revenue for most banks, and net interest income, or NII, accounted for about 46% of revenue in 2021. “We project that net interest margins will rise in 2022, 2023 and 2024 as a series of rate hikes occur, helping drive a roughly 10% compounded annual growth rate for NII over the next three years,” says Morningstar senior equity analyst Eric Compton.
Walt Disney Co. (DIS)
Disney operates across two divisions: media and entertainment, and parks, experiences and products. Its media division, which grossed $51 billion in fiscal 2021, owns a variety of channels and streaming services, such as ABC, ESPN, Disney+ and Hulu, as well as the rights to a swath of movies and television shows. In the streaming wars, Disney+ topped Netflix Inc. (NFLX) in the last three months of 2021, adding 11.8 million subscribers vs. 8.3 million for Netflix. Meanwhile, with COVID-19 restrictions near fully removed in the U.S., the theme parks division notched revenue of $16.6 billion in fiscal 2021. Morningstar analysts say this large-cap stock has a wide economic moat and set a price target of $170 per share, well above its current price of about $140.
7 large-cap stocks to buy for 2022:
— Apple Inc. (AAPL)
— Amazon.com Inc. (AMZN)
— Exxon Mobil Corp. (XOM)
— Caterpillar Inc. (CAT)
— Costco Wholesale Corp. (COST)
— Wells Fargo & Co. (WFC)
— Walt Disney Co. (DIS)
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