Investing in Large Caps

Large-cap stocks represent shares in companies that are well-known, stable, and unlikely to go out of business, at least not any time soon. Though they’re still susceptible to market fluctuations, their size and stability can form a firm anchor in your investment portfolio. 

What are some examples of large-cap stocks, and should you invest in them? Let’s break them down and see.  

What are large-cap stocks? 

By definition, large-cap stocks represent partial ownership in companies with market capitalizations of $10 billion or higher. Recall that market capitalization refers to the total value of a company’s stock. For instance, if a company has 100 million outstanding shares, with each one worth $100, then we’d say that company has a market cap of $10 billion (10 million x $100), and we would consider it a large-cap stock. 

Though large-cap stocks are a diverse bunch, they tend to exhibit similar characteristics. For instance, many large-cap companies are leaders in their industry. They’re often companies that many people have heard of, not just nationally, but worldwide. Because of their size, their share prices typically move with the broader economy, and they often influence broader markets and stock indices, too. 

Usually large-caps will pay out dividends, often with high dividend payout ratios. Though they are more stable than small-caps and mid-caps, large-caps typically don’t experience immense growth. That doesn’t mean they won’t grow. But more often than not they’ve reached a peak in their business, with upward growth being small but steady. 

What are examples of large-cap stocks in Canada? 

To find examples of large-cap stocks in Canada, you don’t have to look far. If you’d like to add some large-cap stocks to your portfolio, here are five stocks you might want to consider. 

Shopify 

With a market cap of $225 billion (read: the largest in Canada), Shopify has become a global leader in ecommerce. Even before the pandemic increased the need for digital services, Shopify had a great business model, though it was certainly the lockdowns of 2020 and 2021 that propelled this stock to large-cap status and beyond. It’s currently the only mega-cap stock in Canada ($200 billion or higher), and with the way things are looking, Shopify still has some years of growth ahead of it. 

Royal Bank of Canada

Since 1864, the Royal Bank of Canada (market cap: $185 billion and counting) has been a big name in Canada. Like other bank stocks, the Royal Bank of Canada offers tonnes of resilience in times of crisis, as evinced by both the 2008 recession and the 2020-2021 pandemic. For a great dividend stock, as well as a solid large-cap, Royal Bank of Canada could be a great pick. 

Brookfield Asset Management 

Brookfield Asset Management, one of the world’s largest alternative asset managers, has a market cap of around $108 billion, and it’s long been a great investment for Canadians. From real estate to clean energy, Brookfield continues to find ways to bring in more cash, giving this massive company even more potential for growth. 

Suncor Energy  

Suncor energy (market cap: $39 billion) is one of Canada’s largest and most popular energy stocks. With a high-quality management team that conducts massive oil producing operations, not to mention manage 1,500 retail gas stations across the country, Suncor is a resilient stock that can offer Canadians investors some stability. Side note: Warren Buffett once owned shares on Suncor, one of the few Canadian stocks he has ever held. 

Fortis 

Foris has a market cap that hovers around $26 billion, securing its place in the large-cap club. Because around 99% of Fortis’ earnings come from regulated utilities (read: Canadians need its services) it remains relatively unscathed by market volatility. The company has increased its dividend payout 47 years in a row, and, with its pledge to expand services in the renewable energy sector, this is certainly a company that has some potential growth in its future.  

Other large-cap stocks in Canada include:

  • Canadian National Railway 
  • Enbridge
  • Scotiabank
  • Bank of Montreal 
  • Thomson Reuters 
  • CIBC 
  • TC Energy 
  • BCE 
  • Constellation Software 
  • Lowlaws 

What are the advantages of investing in large-cap stocks? 

The most obvious advantage to large-cap stocks is their stability. While, sure, large-caps aren’t immune to market volatility, they can certainly fare better in bad times than, say, mid- and small-caps. For this reason, large-caps can form a pivotal place in your investment portfolio, helping you diversify your holding, while also helping you capitalize on a big company’s gains. 

Secondly, large-caps are advantageous (especially for beginners) because of their familiarity. Most investors have heard of large-cap companies. Shopify. Royal Bank of Canada. lulu. These are companies whose products and services we know fairly well, even if we’re not their most loyal brand advocates. Unlike small-cap companies, which are unknown and thus require more research, you typically have a head-start with large-caps, as you don’t need to spend too much time understanding what the company sells. 

Finally, large-cap stocks often pay out dividends to investors. Whether you’re looking for an investment that generates income, or you want a little extra in addition to your gains, dividends can help make up for the fact that large-cap won’t often explode in growth.  

What’s the difference between large-cap and mega-cap? 

Large-cap stocks are pretty big. But they’re not the biggest in terms of market capitalization. That place is reserved for the infamous mega-cap stocks. 

Mega-caps are companies that have market capitalizations of $200 billion or higher. Only a dozen or so companies have reached this exclusive status, only one of which resides in Canada (Shopify). For more examples of mega-stocks, you’ll have to look south of the border: Amazon, Apple, Coca-Cola, Johnson & Johnson, and Verizon are all American mega-caps you might be able to buy through your online broker. 

Large-cap vs. mid-cap vs. small-cap vs. micro cap 

Mid-cap stocks represent shares in companies with market caps between $2 billion and $10 billion. Mid-caps can be attractive to investors, as they often offer the best of both worlds, both potential for upward growth along with some stability. Of course, even though many mid-cap companies are growing, many more have fallen back in growth, occupying the “middle position” after a period of constant upward growth. For that reason, mid-caps can be more risky than large-caps, as you’re not sure if your stocks will ever become the market leaders you hope they will be. 

Below mid-caps, we have small-caps, which have market capitalizations between $300 million and $2 billion. Because of their size, small-caps are more risky than big and mid-cap stocks, as market downturns could easily crush their worth. But risk isn’t always bad: small-caps can be start-ups with explosive ideas, ones that could propel the young company to mid-cap or even large-cap range. And, because of their potential to grow, they can offer investors the potential to “hit it big” with the right company. 

Finally, we have microcaps. Microcaps have market capitalizations between $50 and $300 million. These companies are so small, you often won’t find them on the TSX. They can be fairly risky, much more risky than all the caps above. But, like small-caps, microcaps can represent immense growth, especially if the company has a solid business model and an idea that’s bound to catch on.    

Should you invest in large-cap stocks? 

For investors who are new to stock investing, or whose risk tolerance is fairly low, large-cap stocks might be a good fit. Alternatively, if your investment portfolio is composed of volatile growth stocks, and you’d like to add some stability to your stocks, large-caps can certainly help diversify your holding. 

Of course, as with other stocks, you should always research the companies in which you want to invest. Even though large-cap stocks are fairly stable, you don’t want to invest in companies “just because.” Armed with a solid knowledge of how large-cap companies work, as well as what the future holds, you can avoid investing in a stagnant stock. 

For those investors who aren’t interested in researching or using value metrics to evaluate large-cap stocks, you could buy shares in a large-cap focused exchange-traded fund (ETF). An ETF manager will handpick certainly large-cap stocks for you, and you can profit off the general movement of the fund’s index.