The concept of building your portfolio around several core positions that offer upside and consistent returns is a great way to approach long-term investing. By emphasizing buying large positions in companies with stable earnings and lower volatility, you can feel more comfortable taking risks with the rest of your portfolio and won’t have to worry as much about massive drawdowns in your account.
Mega-cap stocks can be a great option for core positions since they are usually companies with a long history of success and will likely remain leaders in their respective industries for years to come. After all, a company doesn’t just grow to $200 billion or more in market capitalization overnight.
The fact that these are the largest and most important companies in the world helps you to gain confidence in your portfolio and stay the course with your top holdings regardless of what the overall market is doing. If you are interested in some great mega-cap stocks to build your portfolio around, we have details on 3 of them to consider below.
1. Microsoft
If you are looking to find a “big tech” stock to build your portfolio around, it’s hard to imagine a much better choice than Microsoft (NASDAQ:MSFT). This company is getting very close to joining the esteemed $2 trillion market capitalization club and has a lot of different trends that are currently working in its favor, which is a great reason to consider adding shares now.
While most people are familiar with Microsoft’s enterprise software and personal computing products, investors should be most excited about the company’s burgeoning cloud solutions.
With so many businesses looking to update their digital infrastructure and improve their operational efficiency, Microsoft's commercial cloud segment is going to be a huge growth driver for the company over the next few years.
Microsoft Azure, which is Microsoft’s cloud computing platform that helps companies with their digital transformations, is arguably the most exciting reason to consider adding a core position in the company at this time.
Microsoft has roughly doubled its market share to 17% of the public cloud infrastructure business over the last few years, and Azure revenue grew by 50% year-over-year in Q2. The company also has a history of making savvy acquisitions, including the recently announced purchase of Nuance Communications (NASDAQ:NUAN), and has a strong pipeline of innovative new products including Augmented/Virtual reality technology that offers a ton of upside potential in the future.
2. The Home Depot
Next, we have Home Depot (NYSE:HD) which is the world’s largest home improvement retailer and a very strong stock to consider building your portfolio around. As a market-leading company that serves do-it-yourself homeowners and professional customers, you can expect The Home Depot to consistently generate strong earnings and offer nice growth upside as well as over the long term.
It’s a company that has been a major beneficiary of homeowners looking to remodel during the pandemic, and it reported $132.1 billion in sales for fiscal 2020, up 19.9% year-over-year. Residential remodeling activity is expected to reach a decade high at the end of 2021, which means The Home Depot is poised for another huge year.
There’s also a lot to like about this company’s strong corporate strategy that includes expanding internationally into countries like Mexico. The Home Depot also recently purchased HD Supply Holdings (NASDAQ:HDS), which will help it become the premier provider of maintenance, repair, and operations products in the multifamily and hospitality end markets.
With a tried and true brand, tons of market trends working in its favor, and the fact that the stock is breaking out to all-time highs at this time, Home Depot is a fine choice for investors that want to build around a strong blue-chip stock.
3. Bank Of America
Another solid mega-cap stock to consider holding as a core portfolio position is Bank of America (NYSE:BAC), which is one of the largest financial institutions in the world and a company that plays a critical role in the U.S. economy. This company serves consumers with a variety of banking, investing, asset management, and other financial and risk management products and services.
It’s a nice option for any portfolio thanks to the company’s industry-leading brand and the potential for dividend increases and share buybacks in the future. It’s also worth mentioning that the company just announced a $25 billion share buyback plan last week.
Bank of America is also a good mega-cap stock to buy at this time because the financial sector is bouncing back from the impacts of the pandemic in a big way. Keep in mind that a strong economy, rising inflation, and increasing interest rates are all factors that can benefit a company like Bank of America.
The stock has rallied over 30% in 2021 thus far, but that shouldn’t stop investors from adding shares of what is still very likely to be an undervalued mega-cap stock.