The bigger the company and the stock, the better the year they’ve had for investors. But stay alert: some small businesses are about to break into the big leagues.
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Nine S&P MidCap 400 stocks – including industrials Hubbell (HUBB) and FirstSource Builders (BLDR) and technology Dynatrace (DT) — are now valued at $13 billion or more, according to an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That makes them even bigger than 15% of stocks in the large-cap S&P 500, the world’s most popular stock market index.
Such powerful moves by some mid-sized companies show a move that is happening below the surface of the indexes. Yes, large caps are crushing the rest of the market. But emerging smaller companies that rally to the upside are making huge gains on their own terms. The changes also show what tomorrow’s large-cap winners could look like.
“The rationale for the rebound in small- and mid-cap flows is significant,” said Quincy Krosby, chief global strategist for LPL Financial.
Large caps dominate for now
There’s no doubt that investors prefer large-cap stocks like those in the S&P 500 right now. It’s just that the type of companies considered large caps could change.
The SPDR S&P 500 ETF Trust (SPY) is up 15.2% this year. This revolves around the 6.1% rise in the SPDR S&P MidCap 400 Trust (MDY) and the SPDR Portfolio S&P 600 SmallCap ETF (SPSM).
But what many investors might miss is that some mid-cap stocks are up so much that they’re now big enough to be on the S&P 500. Take Hubbell, a maker of electrical components used by utilities. S&P MidCap 400 stocks are up nearly 37% this year. That makes the company worth $17.2 billion. If the company were in the S&P 500, it would be the 363rd most valuable stock in the index.
Other medium-sized miracles
Observing rising midcap values is not only interesting. This may signal significant changes to come in the S&P 500.
From June 19, Parabolic arrays (DISH), the least valuable stock in the S&P 500 at $3.4 billion, is replaced by Palo Alto Networks (PANW), which is valued at $74.6 billion. And there could be more changes. Nearly 35 stocks in the S&P 500 are valued at less than $10 billion, well below the $77 billion average market capitalization of stocks in the index.
Another midcap miracle is Builders FirstSource. The company, which sells building materials to contractors, has seen its shares soar more than 85% this year. This brings the value of the company to $15.5 billion. And then there’s Dynatrace, a computer security company. This S&P 400 company is now worth $15 billion thanks to its 34.8% jump this year.
Given the outperformance of the S&P 500 this year, it is completely understandable that investors are focused on the most important stocks. But promising mid-cap stocks serve as a reminder that the roles of large caps can – and will – change.
Big enough to be S&P 500 Large Caps
The most valuable stocks in the S&P 400
| Business | Teleprinter | YTD | Market value (in billions of dollars) | Sector |
|---|---|---|---|---|
| Hubbell | (HUBB) | 36.5% | $17.2 | Industrial |
| FirstSource Builders | (BLDR) | 87.1 | $15.6 | Industrial |
| Dynatrace | (DT) | 33.7 | $14.9 | Computer science |
| Reliance Steel & Aluminum | (RS) | 26.5 | $15.1 | Materials |
| West Lake | (WLK) | 11.9 | $14.6 | Materials |
| Graco | (GGG) | 28.0 | $14.5 | Industrial |
| Jabil | (JBL) | 54.5 | $13.9 | Computer science |
| Outdoor bridge workers | (BRIDGE) | 28.4 | $13.4 | Consumer Discretionary |
| watsco | (BSM) | 47.0 | $13.3 | Industrial |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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