Why bigger is better in stocks

Email to a Friend

Small-company stocks fell out of favor during 2014 amid concerns about valuation, rising interest rates, the health of the global economy and a bull market that looks long in the tooth.

Because modest economic growth is expected over the next 2 years, small and midcapitalization stocks are likely to lag the performance of large-capitalization stocks, says Anna Edwards of Wells Fargo Advisors. Also, large companies are inclined to have stronger balance sheets, easier access to credit, international sales and numerous products, which tend to make the companies more resistant to recession, she says. Independent financial adviser Paul J. Balestiero agrees that large-company stocks will fare better.

We spoke with four financial analysts but, for compliance reasons, none would recommend any individual large companies. According to Richard Williams of investment-research company Summit Research Partners, you should consider large companies that have a sustainable earnings growth rate, steady cash flow and inflationary pricing power (the capability to hike prices without reducing demand for its products or services).

Based on our research, three companies fit the bill while also providing diversification, an above-average dividend yield and a moderate price: health-care conglomerate Pfizer (NYSE: PFE; Price: $30.58), tech titan Intel (Nasdaq: INTC; Price: $35.17) and oil giant ConocoPhilips (NYSE: COP; Price: $79.97).