Stock Picking 101 : Lesson 3 : Mid and Large Cap Value

Stock Picking 101 : Lesson 3 : Mid and Large Cap Value

Welcome to another installment of Stock Picking 101 here at mycomputerninja.com. In this series, I have already shown how to pick a stock using criteria for Strong Forecasted Growth, and also how to find stocks that fit the Small Cap Value model. Today, I will go over criteria involved in picking medium market and large market capitalization value stocks, according to the pre-set screens found in the Yahoo.com Stock Screener, which by the way, is free for all you penny pinching types.

In the previous lesson, I went over how to select small market capitalization value stocks. In it, I explained that small cap value stocks generally fit these criteria:

  • Market capitalization between $250 million and $1 billion dollars
  • Price to earnings ratio of less than or equal to 10
  • Quick ratio greater than or equal to 1.0

If you find yourself wondering what any of these criteria mean, go ahead and brush up by reading through the Small Cap Value article as a refresher.

Medium Cap Value

I will start now with the criteria for medium market capitalization value stocks, in which you will find only subtle variation on the small market capitalization value stocks. Medium cap stocks generally fit this model:

  • Market Capitalization between $1 billion and $5 billion dollars
  • Price to earnings ratio of less than or equal to 15
  • Quick ratio greater than or equal to 1.0

You will notice that medium cap value stocks vary in only 2 of the 3 variables listed, in comparison to small cap value stocks. The 2 criteria are the market capitalization and the price to earnings, or P/E, ratio. By adjusting the market capitalization value, you are effectively selecting stock from companies that are perceived to be of greater dollar value overall, at least in investors eyes. It is still important to evaluate for yourself whether or not you think the dollar value of the company is accurate. Research is always your best friend.

The second variable that medium cap value criteria is different is with regard to the P/E ratio. The P/E ratio in this case reflects the amount of money you need to invest in order to see $1 in profit, and also the number of years you need to wait to see a return on your investment. A lot of investors tend to use P/E as a gauge to decide if they can make a lot of money quickly on a stock, and as always, this may not be entirely accurate. Even so, adjusting the P/E to another number in a screener is an easy task, just don’t email me if Rooftop Assassins, Inc with a P/E of 2 goes belly up.

Large Cap Value

Large cap value stocks are different from medium cap value stocks in a single criteria, and that is market capitalization. Large cap stocks involve companies with these criteria:

  • Market Capitalization equal to or greater than $5 billion dollars
  • Price to earnings ratio of less than or equal to 15
  • Quick ratio greater than or equal to 1.0

It is easy to see that most large cap stocks are companies that you may recognize from every day life. A quick settings change on the Yahoo.com screener reveals Exxon Mobile, Proctor and Gamble, and a host of other widely recognized companies as large market cap companies. Companies that fit into this model are generally large blue chip companies which you probably own anyway if you have a low risk mutual fund. Companies that fit this criteria would not tend to disappear overnight, which may comfort some of you who remember the Dot-Com bubble. Companies using the large market cap screen have been around the block a few times, figuratively speaking, and generally offer goods or services that people cannot live without. Stocks fitting these variables can be considered “more safe” than medium and especially small cap value stocks, but the wise ninja never lets his guard down. As always, don’t forget to do your homework before you buy.

The admin of this site and writer of this post, Jon Steege, is not a financial analyst or a stock broker. He is a Computer Scientist with a knack for data analysis. He does not own Exxon Mobile or Proctor and Gamble, and does not make any recommendation as to the stability, or lack there of, of any stock mentioned. Buy smart, but buy at your own risk.

See other posts in this series by visiting the investing section on mycomputerninja.com


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