The bigger the company and the stock, the better the year has been for investors. But be careful: some smaller companies are poised to break into the big leagues.
Nine S&P MidCap 400 stocks — including industrials Hubbell (HUBB) and Builders First Source (BLDR) and Tech Dynatrace (DT) – are now valued at $13 billion or more, according to an analysis by Investor's Business Daily using data from S&P Global Market Intelligence and MarketSmith. This makes them even larger than 15% of the stocks in the big-cap focused S&P 500 – the world's most popular stock index.
Such powerful moves by select mid-market companies show that there is movement beneath the surface of the indices. Yes, big caps dominate the rest of the market. But emerging smaller companies that continue to recover are making huge gains on their own terms. The shifts also show what tomorrow's big-cap winners might look like.
“The reason for the rebound in small and midcap inflows is significant,” said Quincy Krosby, chief global strategist at LPL Financial.
Big caps dominate for now
There's no question that investors currently favor big-cap stocks like those in the S&P 500. It's just that the type of companies that qualify as big caps could change.
The SPDR S&P 500 ETF Trust (SPY) is up 15.2% this year. That contrasts with the 6.1% rise in the SPDR S&P MidCap 400 Trust (MDY) and SPDR Portfolio S&P 600 SmallCap ETF (SPSM).
What many investors may overlook, however, is that some midcap stocks have risen so much that they're now big enough to be included in the S&P 500. Consider Hubbell, a manufacturer of electrical components for utility companies. S&P MidCap 400 stocks are up nearly 37% this year. The company is worth $17.2 billion. If the company were included in the S&P 500, it would be the 363rd most valuable stock in the index.
Other Medium Miracles
It's not just interesting to watch emerging midcap stocks. It can indicate important changes in the S&P 500.
From June 19th dish networks (DISH), the least valuable S&P 500 stock at $3.4 billion, is replaced by Palo Alto Networks (PANW) valued at $74.6 billion. And there could be more changes. Nearly 35 stocks in the S&P 500 are worth less than $10 billion — well below the average market cap of stocks in the index of $77 billion.
Another midcap wonder is Builders FirstSource. The company, which sells building materials to contractors, has seen its shares rise more than 85% this year. This puts the company's value at $15.5 billion. And then there's Dynatrace, a computer security company. Thanks to its 34.8% gain this year, this S&P 400 company is now worth $15 billion.
Given the S&P 500's outperformance this year, it's perfectly understandable why investors are fixated on the biggest stocks. But emerging midcap stocks are a reminder that the role of big caps can and will change.
Big enough to be S&P 500 Large Caps
The Most Valuable S&P 400 Stocks
|Pursue||ticker||course of the year||Market value (billion US dollars)||sector|
|Builders First Source||(BLDR)||87.1||$15.6||Industry|
|Trust in steel and aluminium||(RS)||26.5||$15.1||materials|
|Decker's Outdoor||(DECK)||28.4||$13.4||Consumer Discretionary|
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @dull wreath
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