Supersize me. Individual investors, institutions and pension funds love to own giant stocks that command everyone's attention.
Market capitalization is computed by taking the total number of shares and multiplying by the share price. The stocks with the largest capitalization earned their popularity because their companies were quicker, shrewder and more forceful than the competition.
Investors in these stocks expect the winning ways to continue, providing a foundation for their portfolios. They are the biggest, strongest companies you can invest in.
"Our American culture has been driven by pursuit of innovation and success with underlying hard work," said Michael Chren, portfolio manager with Armada Large Cap Value Fund (AEINX) in Oaks, Pa., which owns Exxon Mobil and Microsoft stock. "Companies such as Exxon Mobil and Microsoft fit that mold."
Never put all your eggs in the basket of giant stocks. A diversified small-, mid- and large-cap mix provides stronger, more balanced long-term results. Riskier small-caps zoom under the right conditions.
You often have to pay premium prices to get the best.
"Because companies in our portfolio are high-quality, with earnings in the double-digit range, they tend to have a higher price multiple," explained Robert Millen, co-portfolio manager with Jenson Portfolio Fund (JENSX) in Portland, Ore., which owns General Electric, Pfizer and Johnson & Johnson stock.
"We determine a company's intrinsic value by projecting earnings and cash flow for 10 years," Millen said.
The positives and negatives of these companies are widely covered.
"When you have gigantic institutions with global reach, there is always a risk of bad headlines because mistakes will inevitably happen," said Eric Farls, analyst with BB&T Asset Management in Raleigh, N.C.
"For example, when Charles Prince took over as CEO of Citigroup, one of his goals was to keep Citigroup out of the headlines, and he hasn't been successful at that," Farls noted.
With that in mind, here are stocks with the largest market capitalization - all receiving positive consensus Wall Street analyst ratings as tracked by Thomson First Call - and what experts say:
1. Exxon Mobil (XOM), $404 billion in market capitalization with a consensus "buy" recommendation from analysts.
"Its earnings forecast has gone steadily upward for 18 months and will continue because oil prices will be higher than the price implied in its estimates," Chren said. "It generates results superior to its peers, with the only potential downside being oil prices falling precipitously."
2. General Electric (GE), $379 billion, analyst consensus "buy."
"Its leadership has been focusing on high-growth businesses and getting out of low-growth businesses, so it can grow at 10 percent a year due to strong management," Millen said. "There's little risk, the biggest being the economy turning into recession."
3. Microsoft (MSFT), $265 billion, analyst consensus midway between "strong buy" and "buy" with one "strong sell."
"Microsoft has no debt and tremendous cash, plus a history of underpromising and overdelivering," Chren said. "I see its stock making a 20 percent upward move, though risks would be a dramatic PC sales slowdown or delay in rolling out its new Longhorn operating system."
4. Citigroup (C), $243 billion, analyst consensus midway between "strong buy" and "buy."
"The stock price is historically low due to concerns about rising interest rates," Farls said. "It is a disciplined acquirer of other companies, has gotten out of property/casualty underwriting and is getting out of life underwriting."
5. BP (BP), trading as an American depositary receipt, $241 billion, analyst consensus midway between "buy" and "hold."
"The higher price of oil isn't represented in BP stock, and the company has succeeded in drawing oil from Russia," said Fred Burke, president and portfolio manager for Johnston Lemon Asset Management in Washington. "There's not much downside, since most oil sources have already been found."
6. Wal-Mart Stores (WMT), $220 billion, analyst consensus "buy."
"Positives are international growth and its efficient philosophy, and the size of its debt doesn't concern me in proportion to the company's size," said Carolyn East, analyst with Zack's Investment Research in Chicago. "Impact of higher fuel prices on lower-income customers is worth monitoring."
7. Johnson & Johnson (JNJ), $200 billion, analyst consensus "buy."
"This ethical company with a culture of innovation and creativity acquired and successfully integrated more than 50 companies over the past 10 years," Millen said. "Its purchase of Guidant now puts it in the business of cardiac health management."
8. Pfizer (PFE), $195 billion, analyst consensus "buy."