After the six-year bull run, the major indexes were all over the place this year – up, down and sideways. While the domestic economy showed signs of growth, global concerns kept investors on the edge.
The primary concerns were the persistent decline in oil prices and slowdown in the Chinese economy, along with economic weakness in Europe, Russia, Japan and Brazil.
The strong U.S. dollar further weighed on corporate profitability and was a major headwind for the export sector. Additionally, the delayed interest rate hike kept investors cautious.
The rate hike was expected as early as the first quarter of 2015, but did not come until the December meeting. Actually, repeated procrastination indicated the Fed’s lack of faith in the U.S. economic growth, leading to a plunge in the stock market.
The Dow Jones Industrial Average’s (DJI) year-to-date return has fallen 1.7%, while the S&P 500 (GSPC) is likely to end the year on a more-or-less flat note. However, the Nasdaq Composite (IXIC) fared better, with the tech-laden index having gained 6.6% so far in 2015. Over the past several years, the Nasdaq has outperformed other major indexes, but this time results have been even more convincing.
With just a few more trading sessions to go before the year ends and a few major issues still lingering, the scenario is unlikely to change in 2016.
However, in such an erratic stock market, large-cap stocks (Market Capitalization of more than $10 billion) have historically been the safest bets. Such stocks are an ideal investment option for investors looking for performance stability with lower risk than small-cap and mid-cap ones.
Large-Cap Stocks Are Safer
Treading the path shown by market reviewers, investing in large-cap companies is safe even during economic downturns and stringent credit conditions. For many, these stocks form a quintessential part of the portfolio, given the stability, healthy dividends and safety cushion they offer.
Per a Goldman Sachs report, out of the S&P 500 members, 2015 belonged to the top 1%, as their collective returns accounted for more than the entire year-to-date return of the index.
Perhaps the biggest reason behind investing in large-cap companies at the moment lies in the rampant market uncertainty.
One such large cap stock is Amazon.com Inc. AMZN with a market capitalization of nearly $316.51 billion. Shares of this online retailer have surged around 119% year-to-date mainly driven by strong sales in North America and explosive growth in its cloud computing business — Amazon Web Service (AWS).
In the last-reported quarter, accounting for just 8% of revenues, AWS comprised over 52% of the profits. This Zacks Rank #2 (Buy) stock has delivered positive surprises in the trailing four quarters with a massive average beat of 147.97%.
After incurring net loss last year, the 20-year old company’s expected earnings per share (EPS) growth rate stands at 443.6% for this year and 171% for the next. Therefore, we believe that though the stock has already doubled in value, it still has a huge growth potential.
Amazon was not the only stock which soared in 2015. With the help of the Zacks Stock Screener, we have zeroed-in on four other large-cap stocks that sport a Zacks Rank #1 (Strong Buy) or 2, and have witnessed a year-to-date price change of more than 50%.
Below, we have listed four stocks that not only performed well in 2015 but have excellent prospects going into 2016:
Santa Monica, CA-based Activision Blizzard Inc. ATVI is a worldwide pure-play online and console game publisher with leading market positions across all categories of the rapidly growing interactive entertainment software industry. With a share price surge of 95.8% year-to-date along with a market capitalization of $28.54 billion, this Zacks Rank #1 stock remains an attractive pick.
Further, the company has delivered positive earnings surprises in the last four quarters, with an average beat of 125.03%. Further, though the current earnings estimate for 2015 represents a negative EPS growth rate of 4.7%, the company is expected to post EPS growth of 22.3% next year.
Atlanta-based Acuity Brands Inc. AYI includes Acuity Lighting Group and Acuity Specialty Products. The Acuity Lighting Group is the world's largest lighting fixture manufacturer and comprises brands such as Lithonia Lighting, Holophane, Peerless and Hydrel. Acuity Specialty Products, on the other hand, is a leading provider of specialty chemicals and owns brands such as Zep, Enforcer and Selig.
Share price growth of 71.8% year-to-date and a market capitalization of $10.49 billion make the Zacks Rank #2 stock an attractive option. Further, the company has delivered positive earnings surprises in the last four quarters, with an average beat of 5.23%. Earnings are expected to grow 27.0% this fiscal year and around 22.2% in the next.
Santa Clara, CA-based NVIDIA Corporation NVDA designs, develops and markets the complete family of award-winning 3D graphics processors, graphics processing units and related software that set the standard for performance, quality and features for every desktop PC user, from professional workstations to low-cost computers. With a share price gain of 67.4% year-to-date along with a market capitalization of $17.83 billion, this Zacks Rank #1 stock remains an attractive choice.
Further, the company has delivered positive earnings surprises in three of the last four quarters, with an average beat of 53.20%. Though the current earnings estimate for fiscal 2016 (ending Jan 2016) represents a negative EPS growth rate of 13%, the company is likely to post 30.4% EPS growth in fiscal 2017.
Salt Lake City-based Extra Space Storage Inc. EXR is a fully integrated, self-administered and self-managed real estate investment trust that acquires, develops and operates self-storage facilities. Share price increase of 55.9% year-to-date and market capitalization of $11.0 billion make the Zacks Rank #2 stock an attractive investment choice. Additionally, the company has delivered positive earnings surprises in the last four quarters, with an average beat of 2.05%. Earnings are expected to grow 21% this year and roughly 17.1% in the next.
Conclusion
Dealing with volatility is something investors may have to get used to for the next year as well. At the same time, investors would be foolish to ignore the growth prospects in these large-cap stocks. They are also a hedge against risk which is why these would only strengthen your portfolio.
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