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“I actually think large-cap stocks have more growth potential because they can go outside the United States,” said Thomas H. Forester, manager of the Forester Value fund, who has been bullish about this group since 2008.
Not only are the large caps cheaper than small caps by historical standards, but some of these big companies, like Hewlett-Packard and Microsoft, are trading at price-to-earnings ratios of nine or less, based on projected earnings. Large stocks also have greater exposure to foreign markets, including emerging markets like China.
Every since big blue-chip domestic stocks fell out of favor in early 2000, many market strategists have regularly been predicting their imminent return to glory, The New York Times’s Paul J. Lim writes.
Large stocks are also sitting on a mountain of cash. “At some point, these companies will start using that money to raise dividends, buy back their stock, or start buying each other,” said Robert E. Turner, chief investment officer at Turner Investment Partners, a money management firm in Berwyn, Pa. He says that cash has been especially important since the disruptions of the financial crisis.
Today, some market watchers are armed with a kitchen sink full of arguments that the stage is set for a blue-chip revival.
Amid the global financial panic of 2008, investors were supposed to regain their appetite for blue chips because, in uncertain times, these industry-dominating companies could offer steadier growth. Yet,[link widoczny dla zalogowanych], that year, large-cap stocks fell even harder than small-company stocks. And to add insult to injury,[link widoczny dla zalogowanych], small stocks went on to outpace large ones in 2009 and so far this year.
In 2003, after the tech bubble burst and market valuations started to fall back to earth, large-capitalization stocks were supposed to catch a second wind. They didn’t.
But before investors get too worked up about a pending blue-chip boom, it’s important to note that it could take months, if not years, before large stocks stage a real comeback.
All of these trends could benefit large-cap stocks, which have had a miserable decade. While small caps were up nearly 4 percent, annualized, from 2000 to the end of 2009,[link widoczny dla zalogowanych], and mid-caps rose more than 6 percent, annualized, the large-cap Standard & Poor’s 500 lost about 1 percent.
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