Small Cap Vs. Large Cap Stocks

Photodisc/Photodisc/Getty Images

The size of a stock exchange-listed company can be measured by market capitalization, which is the share price times the total number of shares outstanding. Large cap stocks are those of big, often well-known corporations. Small caps lack the same kind of name recognition, but often offer greater potential for investment gains.

Large Cap Size Cutoff

As a general rule, large-cap companies are defined as those with market caps greater than $10 billion. As of August 2014, there are about 650 companies trading on the U.S. stock exchanges that meet the size requirements. Companies worth more than $200 billion fall into the mega-cap subcategory of large cap.

Small Cap Covers a Large Portion of Listed Stock

The typical definition of small cap uses a value floor of $100 million up to $1 billion or $2 billion. Several thousand publicly traded companies listed on the U.S. stock exchanges fall into this range. Below $100 million are the micro-cap stocks and above the small-cap range you find the mid cap stocks.

Known Quantities vs. Hidden Treasures

Large cap stocks offer investment opportunities with well-known companies that typically can generate profits in both good and bad economic conditions. They usually have a lot of coverage by Wall Street analysts, which means you have access to plenty of information about them. Small cap stocks are not as well known, nor widely covered by Wall Street analysts. However, they let individual investors potentially find hidden opportunities for profitable investments. Smaller companies often outperform larger stocks when the economy is growing, but can run into financial trouble during tough economic conditions.

References

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

Photo Credits

  • Photodisc/Photodisc/Getty Images