It is almost every day that we take a look at the market capitalization rates of some of America’s largest public companies in our own Real-Time 500 reading. The recession killed many stocks and their respective market caps, but many have recovered from their falls from grace. The definition of a mega-cap differs from source to source, but $100 billion is the 24/7 Wall St. threshold. We recently conducted a search through mega-cap stocks and as of this week we counted some 26 members in our mega-cap club.
Motley Fool previously counted a $50 billion threshold to be in place for a ‘mega-cap’ status, but Investopedia now counts the mega-cap threshold as being $200 billion. Kiplinger’s mega-cap portfolio is simply the ten largest market caps in America, and some others use $100 billion as the threshold. Fifteen years ago and longer I used to use $50 billion as the threshold, but that was because all of the values of companies were so much lower on a nominal market capitalization rate back then. Times change, and apparently so do ‘values.’
Our aim is to identify the next wave of mega-cap stocks. Let’s dub it “The 2011 to 2013 Class of New Mega-Caps.” Some will require a bull market continuation to join this prized class, but some will likely make it on their own. Those which are likely to make the list are as follows: Abbott Laboratories (NYSE: ABT); Amazon.com, Inc. (NASDAQ: AMZN); Cisco Systems, Inc. (NASDAQ: CSCO); Hewlett-Packard Company (NYSE: HPQ); Goldman Sachs Group, Inc. (NYSE: GS); McDonald’s Corporation (NYSE: MCD); Occidental Petroleum Corporation (NYSE: OXY); Qualcomm, Inc. (NASDAQ: QCOM); United Technologies Corporation (NYSE: UTX); and The Walt Disney Company (NYSE: DIS).
If you review the first page of our own REAL-TIME 500, all 25 companies are mega-caps. What a difference a monster rally can make. If you go to the page-two for companies ranked 26 to 50 by market cap, then you will see that there is a whole host of such companies with market caps within striking distance of the $100 billion threshold. We have outlined what analysts are already looking for, what each has done, and what the scenarios are that will allow each of these to join the mega-cap club.
Abbott Laboratories (NYSE: ABT) could rather easily find itself in the mega-cap field along with Johnson & Johnson, Merck & Co., and with Pfizer. Its market cap is roughly $82 billion, and with shares around $52.70 its 52-week range is $44.59 to $53.75. Abbott’s stock has peaked around $60 before and it will likely take a share price north of $63.00 to reach the mega-cap status. Thomson Reuters has a consensus price target of about $58.12 on the stock, so Abbott’s chances of attaining the $100 billion market cap are feasible in the not too distant future.
A market observer doesn’t need a lesson in the medical sector to know that growth has mostly stalled. The sector has spent years with the band Talking Heads singing ‘We’re on the Road to Nowhere.’ Now it seems that the tide has turned for some in the sector. Abbott is still managing to grow more than many peers. It is even possible that Abbott could choose to make an acquisition, which could drive its shares into the $100 billion club. It could acquire a device company, a smaller drug company, or even a biotech outfit. Your guess is as good as anyone’s who or what it might buy. Fortunately this outfit might get there all on its own.
Amazon.com, Inc. (NASDAQ: AMZN) has been one of the greatest growth stories of the internet. It has become THE envy and fear of every just about retail distribution and order-taking conglomerates whether they are brick and mortar or online-only. With shares north of $203.00 and having hit all-time highs this week, its 52-week range is $105.80 to $205.29 and its market cap is already above $91 billion. Amazon’s stock is currently above its $197.50 or so consensus price target from analysts, but some price targets are much higher.
Jeff Bezos has amassed a monster empire here. It has been experiencing margin compression, yet that has not hindered its share performance as it is aggressively building for the future. The Kindle, Zappos, the cloud, Audible, and a dozen other new initiatives and opportunities can be the next growth drivers. The company has moved to sell everything that is legal to sell and it collects a fee for being the destination referring agent. Internet taxation issues are going to remain here and it is unlikely that the no-tax plan can continue indefinitely, but that might not matter. Online shopping is here to stay and its customers are likely to continue shopping online rather than venturing out to 15 stores for what can be found in one online site’s shopping basket. Most competing efforts to date have revolved around media and virtual products rather than the sale of physical goods.