Market capitalization is a tool that investors in stocks use to predict the rate of return on a potential investment in equities. The figure is useful because it can project potential earnings over a period of time, or it can be used to evaluate a stock price over an extended period of time. A companies’ market valuation will fluctuated throughout the year based upon its share price and the number of outstanding shares.
With the knowledge of market capitalization among other tools, the average investor can determine a stock’s valuation and potential future profitability. The actual method used to calculate a companies’ market cap is beyond the scope of this article however, there are entire papers written on the subject.
The following list represents the top 10 publicly traded companies in the United States as of March, 2014. The top ten list has remained fairly constant over the last decade, however, the members of the list jockey for position throughout the year depending on our their stock price is doing. Apple took over the top spot from Exxon Mobil at the end of 2012.
Lately IBM and Wal-Mart have dropped a couple of spots, while Microsoft is on the rise with the recent run-up in its stock price.
Apple did briefly give back the top spot back to Exxon Mobil in mid 2013, by the end of the year had regained the top spot. Lately, the more interesting fight has been for the number two spot between Exxon and Google.
Market Capitalization and Price to Earnings Ratio
If you are considering investing in the stock market, a company with one of the largest market caps is a good place to start because their earnings tend to be more stable. They tend to be the bluest of the blue chips, many of which pay a significant dividend every quarter.
However, first take a look at the current market and individual stock Price to Earnings Ratio (P/E). The overall market P/E ratio is one of the most useful tools in evaluating the health of the overall market in historic terms. This will tell you if the market is overvalued or undervalued.
The easiest way to do this is add the current price all 30 of the Dow Jones stocks together. Next, add and total all of the earnings per share from the past two quarters and estimates for the next two.
Then divide the first number (total price) by the second (total EPS) to find the market P/E.
The final number will let you compare the current valuation of the market with the historic or 10 year average to see if the overall market is currently over or undervalued. For the last 10 years the Dow has average about a 14 P/E.
The P/E of an individual stock is simple the current share price divides by its earning per share over the last four quarters. This number will give you an idea of how a stock is trading in relation to its peers.
10) International Business Machines Corporation
Market Capitalization: $201.28B
P/E Ratio: 13.1
Company Profile: International Business Machines Corporation is an information technology company operating in five segments: Global Technology Services (GTS), Global Business Services (GBS), Software, Systems and Technology and Global Financing.
9) Wal-Mart Stores, Incorporated
Market Capitalization: $252.46B
P/E Ratio: 15.88
Company Profile: Wal-Mart Stores operates in three business segments: Walmart U.S., Walmart International and Sam's Club.
8) Wells Fargo & Company
Market Capitalization: $256.44B
P/E Ratio: 12.43
Company Profile: Wells Fargo is a financial and a bank holding company that operates in three segments through its subsidiaries: Community Banking, Wholesale Banking and Wealth, Brokerage and Retirement.
7) General Electric Company
Market Capitalization: $258.14B
P/E Ratio: 17.86
Company Profile: General Electric is a diversified technology and financial services company divided into divisions: Power and Water, Oil and Gas, Energy Management, Aviation, Home and Business Solutions and GE Capital.
6) Johnson & Johnson
Market Capitalization: $277.35B
P/E Ratio: 20.11
Company Profile: Johnson & Johnson is a holding company comprised of three commercial business segments: Consumer, Pharmaceutical and Medical Device and Diagnostics.
5) Berkshire Hathaway Incorporated
Market Capitalization: $302.80B
P/E Ratio: 15.69
Company Profile: Berkshire Hathaway is a holding company and engages through its subsidiaries in a number of business activities including property and casualty insurance and reinsurance, railroad, utilities and energy and finance.
Amazon Price: $12.99 $5.40 Buy Now
(price as of Jan 26, 2015)
4) Microsoft Corporation
Market Capitalization: $330.53B
P/E Ratio: 14.82
Company Profile: Microsoft is engaged in developing, licensing, and supporting a range of software products and services operating in five segments: Windows Live Division, Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division (EDD).
3) Google Incorporated
Market Cap: $375.10B
P/E Ratio: 14.79
Company Profile: Google is a technology company primarily focused around the following main areas: search, advertising, operating systems and platforms, enterprise and hardware products.
2) Exxon Mobil Corporation
Market Cap: $421.32B
P/E Ratio: 13.21
Company Profile: Exxon Mobil is a fully integrated energy supplier. The principal business consists of the exploration and production of crude oil and natural gas, as well as the manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products.
Amazon Price: $14.99 $6.26 Buy Now
(price as of Jan 26, 2015)
Market Cap: $467.20B
P/E Ratio: 13.07
Company Profile: Apple designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications.
The real battle right now is between Google and Exxon Mobile for the 2nd spot, although Mr. Softie is on a run. Apple seems entrenched at the top spot for the time being and its stock price has held up well after the release of the iPhone 5s in the Fall of 2013 and looks for further gains with the iPhone 6 due in the fall.
With new product categories such as the iWatch and perhaps some sort of TV expected in late 2015, along with a new iPhone 6 with a larger screen, look for Apple to not only hold the number one spot, but increase its lead. In fact, in the next several years, many speculate that it will become the first trillion dollar company by market cap.