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Stock Strategist

Five Large-Cap Stocks to Watch Today

These large companies could produce big returns.

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Despite widespread expectations that 2006 would be a banner year for the market's biggest companies, large-cap stocks--which Morningstar defines as stocks with market capitalizations of about $8.5 billion and above--have continued to trail their small brethren. Through April 17, the Morningstar Large Cap Index has returned 3.4% compared to an 11.2% return for the Morningstar Small Cap Index. This continues a streak of underperformance that began after large stocks were crushed in the bear market that began in 2000. Since then, smaller-cap issues have soared while the large stocks have annualized returns of less than 3% per year over the trailing five-year period.

But it would be a mistake to write off this segment of the market entirely. Although large caps haven't kept pace, earnings and cash flows for many big names have improved dramatically. It could only be a matter of time before the market recognizes that many of these companies boast strong profit margins, healthy balance sheets, and excellent global growth prospects. There's also something to be said for owning large companies that have consistently generated top- and bottom-line growth in a variety of market climates.

John Novak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.