In this article, we discuss 12 large-cap stocks to buy for a starter stock portfolio. If you want to see more stocks in this selection, check out Starter Stock Portfolio: 5 Large-Cap Stocks To Buy.
Data from Bank of America indicates that 59% of large-cap active exchange traded funds exceeded their Russell 1000 benchmarks amid a volatile market environment in September. It was especially hard for small- and mid-cap ETFs, which underperformed severely compared to their large-cap counterparts.
According to the SPIVA U.S. Scorecard, a new study by S&P Global, large-cap active fund managers are posting the best returns this year against their benchmarks since 2009. On average, about 68% of large-cap funds underperform their benchmarks, but this study shows that only 51% underperformed benchmark indices in the first half of 2022. Market capitalization is largely used as an indicator to judge a company’s financial performance and business outlook.
Large-cap stocks have a reputation for offering quality goods and services, and a resilient profile of dividend payments and steady growth. Investors who are beginning to navigate the market often look for safe stock options, and large-cap stocks offer protection as they have a history of surviving market downturns. Some of the best large-cap stocks to buy for a starter portfolio include T-Mobile US, Inc. (NASDAQ:TMUS), ConocoPhillips (NYSE:COP), and Wells Fargo & Company (NYSE:WFC).
Our Methodology
We selected the following large-cap stocks suitable for beginners based on optimistic analyst coverage, strong business fundamentals, and resilient dividend profiles. We have assessed the hedge fund sentiment from Insider Monkey’s database of 895 elite hedge funds tracked as of the end of the second quarter of 2022. These stocks are safe and thus offer good investment options for beginners.
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Starter Stock Portfolio: Large-Cap Stocks To Buy
12. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 38
United Parcel Service, Inc. (NYSE:UPS) provides postal delivery, transportation, logistics, and related services. It operates through two segments – U.S. Domestic Package and International Package. In anticipation of the upcoming holiday season, beginning in October 2022 and continuing through January 2023, United Parcel Service, Inc. (NYSE:UPS) announced on September 7 that it will hire more than 100,000 additional workers to support the expected annual increase in package volume.
On October 13, KeyBanc analyst Todd Fowler maintained an Overweight rating on United Parcel Service, Inc. (NYSE:UPS) but lowered the price target on the stock to $200 from $250. The Key First Look Data Online Parcel Index was slightly below seasonal variations in Q3, but remained up year-over-year, with Amazon.com transactions increasing and in high single-digits, both of which are in line with the analyst’s short-term expectations for United Parcel Service, Inc. (NYSE:UPS).
According to Insider Monkey’s data, 38 hedge funds held stakes worth $613 million in United Parcel Service, Inc. (NYSE:UPS) at the end of June 2022, compared to 50 funds in the prior quarter worth $1 billion. Phill Gross and Robert Atchinson’s Adage Capital Management is a significant position holder in the company, with 764,900 shares valued at nearly $140 million.
In addition to T-Mobile US, Inc. (NASDAQ:TMUS), ConocoPhillips (NYSE:COP), and Wells Fargo & Company (NYSE:WFC), smart investors are backing United Parcel Service, Inc. (NYSE:UPS) to weather the current market volatility.
Here is what ClearBridge Large Cap Growth ESG Strategy has to say about United Parcel Service, Inc. (NYSE:UPS) in its Q2 2022 investor letter:
“UPS has been a beneficiary of the pandemic-related shift to e-commerce. Revenues increased 15% in the year, with strong leverage in the business boosting operating profit by al- most 67%. Management is focusing on a ‘Better not Bigger’ strategy for the business and divested the UPS Freight business early in the year. Mean- while, the company is expected to increase distributions to shareholders in 2022, from both dividends and share buybacks.”
11. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 50
McDonald’s Corporation (NYSE:MCD), the American multinational fast food giant, is one of the best large-cap stocks to buy for a starter portfolio. On October 14, McDonald’s Corporation (NYSE:MCD) declared a $1.52 per share quarterly dividend, a 10.1% increase from its prior dividend of $1.38. The dividend is distributable on December 15, to shareholders of record on December 1. The dividend raise reflects McDonald’s Corporation (NYSE:MCD)’s confidence in its Accelerating the Arches growth strategy, and the company’s willingness to generate long-term returns for all stakeholders.
Stephens analyst Joshua Long initiated coverage of McDonald’s Corporation (NYSE:MCD) on September 22 with an Overweight rating and a $280 price target. The company has continued to deliver attractive value offerings at the affordable end of its menu and premium products at the high end, said the analyst, who expects continuous menu innovation to remain a significant driver of same-store sales. In an inflationary environment, he believes McDonald’s Corporation (NYSE:MCD) should benefit from a trade down effect, the analyst added.
According to Insider Monkey’s Q2 data, 50 hedge funds were long McDonald’s Corporation (NYSE:MCD), compared to 58 funds in the prior quarter. Ray Dalio’s Bridgewater Associates is the largest position holder in the company, with more than 2 million shares worth $511.4 million.
10. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 58
Morgan Stanley (NYSE:MS), an American multinational investment management and financial services company, features as one of the best large-cap stocks to invest in. On October 18, Credit Suisse Group AG (NYSE:CS) announced that it is working with Morgan Stanley (NYSE:MS) and Royal Bank of Canada on a potential capital raise, in case Credit Suisse needs to reinforce its balance sheet and add in new capital to finance its restructuring.
On October 18, BMO Capital analyst James Fotheringham reiterated an Outperform rating on Morgan Stanley (NYSE:MS) but lowered the price target on the stock to $95 from $97. Q3 2022 was another “challenging quarter” for Morgan Stanley (NYSE:MS), with market depreciation offsetting solid Wealth Management and Investment Management flows, the analyst told investors. However, he contended that the market still undervalues these high-multiple segments, and Morgan Stanley (NYSE:MS)’s “meaningful excess capital and limited credit exposures” leave it positioned advantageously relative to peers.
According to Insider Monkey’s Q2 data, 58 hedge funds were long Morgan Stanley (NYSE:MS), compared to 61 funds in the prior quarter. Boykin Curry’s Eagle Capital Management is the leading position holder in the company, with 14 million shares worth over $1 billion.
Here is what Matrix Asset Advisors specifically said about Morgan Stanley (NYSE:MS) in its Q2 2022 investor letter:
“Morgan Stanley (NYSE:MS) is one of the world’s leading investment banks and wealth management firms. As the company has grown its wealth management business its earnings have become more predictable and valuable. The management team is very shareholder-friendly, allocating funds not needed to grow the business to repurchase shares and raise their dividend. In late June, the company announced an 11% increase in its dividend and a $20 billion multi-year share repurchase program. The company’s annual dividend of $3.10 per share provides a current dividend of 3.7% at the June 30 closing price.”
9. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 58
Next on our list of the best large-cap stocks to buy is Verizon Communications Inc. (NYSE:VZ), a New York-based company that offers communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. On October 5, Verizon Communications Inc. (NYSE:VZ) announced that it had secured an order to transform the global communications infrastructure and provide IT services for each of the Department of State’s U.S. embassies, consulars, and other primary locations worldwide.
Oppenheimer analyst Timothy Horan on October 6 upgraded Verizon Communications Inc. (NYSE:VZ) to Outperform from Perform with a $50 price target. The analyst expects a “gradual stabilization-to-growth” of the company’s subscriber base, but acknowledged that short-term trends could remain volatile.
Among the hedge funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management featured as the leading stakeholder of Verizon Communications Inc. (NYSE:VZ), with 17.3 million shares worth about $880 million. Overall, 58 hedge funds were bullish on Verizon Communications Inc. (NYSE:VZ) at the end of the second quarter of 2022, compared to 69 funds in the earlier quarter.
Here is what Mawer Investment Management has to say about Verizon Communications Inc. (NYSE:VZ) in its Q3 2022 investor letter:
“There are a few other segments of our portfolios that displayed weakness in the quarter. Cable and telecommunication companies have been an area that has lagged the broader market as their worlds are increasingly colliding. Companies such as Verizon (NYSE:VZ) have been impacted as wireless operators are spending heavily to attract internet subscribers with fixed wired access and the cable companies are trying to build wireless businesses.”
8. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 59
NextEra Energy, Inc. (NYSE:NEE) is a Florida-based company that generates, transmits, and sells electric power to retail and wholesale customers in North America. The company generates electricity through wind, solar, nuclear, coal, and natural gas facilities. On October 14, NextEra Energy, Inc. (NYSE:NEE) declared a quarterly dividend of $0.425 per share, in line with previous. The dividend is payable on December 15, to shareholders of record on November 25. The company’s dividend yield on October 19 came in at 2.26%.
On September 16, BMO Capital analyst James Thalacker raised the price target on NextEra Energy, Inc. (NYSE:NEE) to $100 from $92 and assigned an Outperform rating to the shares. The analyst is optimistic about NextEra Energy, Inc. (NYSE:NEE)’s market-leading position within the sector and believes that the stock warrants a premium valuation on the back of its fundamental and thematic drivers.
According to Insider Monkey’s data, 59 hedge funds were bullish on NextEra Energy, Inc. (NYSE:NEE) at the end of the second quarter of 2022, compared to 64 funds in the prior quarter. Jos Shaver’s Electron Capital Partners is a notable position holder in the company, with 2.6 million shares worth $205 million.
In its Q2 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and NextEra Energy, Inc. (NYSE:NEE) was one of them. Here is what the fund said:
“We increased our exposure to the energy transition during the quarter with new positions in Iberdrola (OTCPK:IBDSF), a Spanish-based integrated utility that is also one of the leading renewable energy developers in the world, and NextEra Energy, Inc. (NYSE:NEE), an integrated utility business with a regulated utility operating in Florida and the largest wind business in the U.S. The war has opened the eyes of the world that energy independence is critical. Renewables are for many countries the only way to get to the target. It is expected that existing renewable project pipelines will be executed faster, and more projects added to existing pipelines.
The energy transition would be extremely helpful for climate change and Iberdrola ranks well on our ESG matrix. NextEra, meanwhile, recently raised future earnings forecasts, citing a very favorable macro environment for rapid renewable generation expansion driven by decarbonization of the U.S. economy and the relative attractiveness of renewable generation in the context of high natural gas and power prices.”
7. Abbott Laboratories (NYSE:ABT)
Number of Hedge Fund Holders: 61
Abbott Laboratories (NYSE:ABT) is an American manufacturer of healthcare products worldwide. It operates through four segments – Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Medical Devices. On September 15, Abbott Laboratories (NYSE:ABT) declared a $0.47 per share quarterly dividend, which is payable on November 15 to shareholders of record on October 14. Abbott Laboratories (NYSE:ABT) has increased its dividend payout for 50 consecutive years, making it a reliable dividend king. It is one of the best large-cap stocks to invest in.
On October 17, investment advisory Barclays initiated coverage of Abbott Laboratories (NYSE:ABT) with an Overweight rating and a $118 price target. Analyst Matt Miksic issued the ratings update.
According to Insider Monkey’s data, 61 hedge funds held stakes worth $3.60 billion in Abbott Laboratories (NYSE:ABT) at the end of Q2 2022, compared to 68 funds in the earlier quarter worth $4 billion. Ric Dillon’s Diamond Hill Capital is a significant shareholder of the company, with 5.8 million shares worth $639.5 million.
In its Q1 2022 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and Abbott Laboratories (NYSE:ABT) was one of them. Here is what the fund said:
“Abbott Laboratories (NYSE:ABT) announced a recall of its infant formula brand Similac® in the US. Though the recall will impact near-term revenues, we are not concerned about any long-term impacts. We remain optimistic about the company’s prospects over the long run because, in our view, it is one of the highest quality names in health care with a talented management team that makes smart capital allocation decisions. Abbott also has leading health care and consumer franchises with a particularly strong competitive position in the medical device business. Abbott continues to launch innovative products in key strategic areas (such as diabetes, structural heart and diagnostics), which should help drive not only revenue growth but margin expansion.”
6. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 66
Broadcom Inc. (NASDAQ:AVGO) is a California-based company that develops digital and analog semiconductor devices worldwide. The company operates in two segments, Semiconductor Solutions and Infrastructure Software. On October 16, Broadcom Inc. (NASDAQ:AVGO) announced that it is seeking early European Union approval for its planned $61 billion acquisition of the cloud computing company, VMware, Inc. (NYSE:VMW). Broadcom Inc. (NASDAQ:AVGO) distributed a $4.10 per share quarterly dividend on September 30 to shareholders.
On October 18, Deutsche Bank analyst Ross Seymore maintained a Buy recommendation on Broadcom Inc. (NASDAQ:AVGO) but lowered the price target on the stock to $575 from $635. The analyst is becoming “incrementally more constructive” on semiconductor stocks, noting that the decline in the sector and relative underperformance versus the S&P 500 has been priced in and the group valuation of 20% is below its 5-year average.
According to Insider Monkey’s second quarter database, 66 hedge funds were long Broadcom Inc. (NASDAQ:AVGO), compared to 71 funds in the last quarter. William Von Mueffling’s Cantillon Capital Management is a prominent stakeholder of the company, with more than 1 million shares worth $501 million.
Like T-Mobile US, Inc. (NASDAQ:TMUS), ConocoPhillips (NYSE:COP), and Wells Fargo & Company (NYSE:WFC), Broadcom Inc. (NASDAQ:AVGO) is one of the top large-cap picks of elite hedge funds to weather the turbulent market backdrop.
Here is what Carillon Tower Advisers specifically said about Broadcom Inc. (NASDAQ:AVGO) in its Q2 2022 investor letter:
“Tech stocks, including Broadcom Inc. (NASDAQ:AVGO), were one of the hardest-hit sectors due to fears over a weakening macroeconomic environment. Broadcom, however, outperformed semiconductor peers as its end-market exposures provided relatively more defensive characteristics.”
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Disclosure: None. Starter Stock Portfolio: 12 Large-Cap Stocks To Buy is originally published on Insider Monkey.
