Last year, many investors were interested in mega-cap stocks,
as they seemed to be undervalued. For instance, FPA Funds'
Steven Romick went on WealthTrack with Consuelo
in July 2011 to discuss why CVS (
), Walmart (
) and Microsoft (
) were cheap at the time. However, the picture for these and many
high-quality, big-market-cap stocks has changed, and they may
have become not as good bargains as they once were. Just three
mega-cap stocks currently have single-digit P/E ratios. Here are
some large caps whose valuations have become less attractive
Walmart has the fourth-largest market cap of U.S. stocks,
according to GuruFocus' All-in-One Screener. One year ago, the
company had a P/E ratio of 11.13. The P/E has steadily increased
since then to trade above 15 all summer and stand at 15.58 on
Tuesday. Over the same period, Walmart's stock price rose 40% to
reach $74, after remaining virtually flat, around $50, for a
Over the decade that Walmart's stock barely moved, its book value
per share grew at an annual rate of 10.8% annually. Last fiscal
year, it was $22.12. Therefore, it was trading at slightly more
than twice book value. Its more recent stock price places it at
more than three times book value.
Microsoft has the third-largest market cap. The company has had a
similar pattern with its P/E ratio. One year ago it was in the
single digits. Then, in the third quarter, it jumped to above 15
and has remained above that number to date. Microsoft's stock
price has increased just 15% over the last year, but in the third
quarter it had a $0.06 loss per share, dropping its trailing
12-month earnings used to calculate P/E and resulting in a more
expensive stock. It is trading for about $31 on Tuesday.
Microsoft has also grown its book value per share at a slow rate
of 2.2% annually. It is similarly priced based on book value per
share than it was a year ago. One year ago it traded around 3.9
times book value. Today it is around 4 times book value.
The company still generates strong free cash flow, which reached
$29 billion in 2012, and has more than $79 billion in cash on its
Apple has the largest market cap of all U.S. companies, at $638
billion and growing. In a single year, its stock has increased
almost 75%, topping $700 per share recently.
Apple's P/E is the same now, around 16, as it was a year ago. But
it has fluctuated in the mean time, falling to as low as around
11 early in 2012. Earnings in the last year increased 71.7%.
The company also became less cheap than it was based on price to
tangible book. Its price to tangible book was 4.9 last year, and
has increased to 5.06 in the latest quarter.
CVS is a smaller large cap, with a market cap of $58 billion, but
one that many Gurus purchased in the last year. Its P/E in fall
of last year fell as low as around 13. Since then it has risen to
15.1. Over the same period, the stock has risen 31% to $47.50 per
On a tangible book value per share basis, the company has become
more expensive. Last year, its price to tangible book was 30.89,
and in the latest quarter increased to 37.19.
For more large cap stocks to research, try
GuruFocus' All-in-One Screener
and screen by market cap.
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