The bigger the company and stock — the better year they've had for investors. But keep a lookout: Some smaller firms are on the verge of breaking into the big leagues.
Nine S&P MidCap 400 stocks — including industrials Hubbell and Builders FirstSource and tech Dynatrace — are now valued at $13 billion or more, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That 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 midsize companies show a movement happening under the surface of the indexes. Yes, big caps are trouncing the rest of the market. But up-and-coming smaller companies rallying higher are making huge gains on their own terms. The shifts also show what the big-cap winners of tomorrow might look like.
"The rationale for the rebound in small and midcap flows is significant," said Quincy Krosby, chief global strategist for LPL Financial.
Big Caps Dominate For Now
There's no question that investors prefer the big-cap stocks like the ones in the S&P 500 right now. It's just that the kind of companies considered big caps might be changing.
The SPDR S&P 500 ETF Trust is up 15.2% this year. That runs circles around the 6.1% rise by the SPDR S&P MidCap 400 Trust and SPDR Portfolio S&P 600 SmallCap ETF.
But what many investors might be missing is that some midcap stocks are up so much they're now big enough to be on the S&P 500. Take Hubbell, a maker of electrical components used by utilities. Shares of the S&P MidCap 400 stock are up nearly 37% this year. That makes the company worth $17.2 billion. If the company was in the S&P 500, it would be the 363rd-most-valuable stock in the index.
Other Midsize Miracles
Watching up-and-coming midcap stocks isn't just interesting. It can signal important changes coming to the S&P 500.
Starting on June 19, Dish Networks, the least valuable S&P 500 stock at $3.4 billion, is replaced by Palo Alto Networks, 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 average $77 billion market capitalization of stocks in the index.
Another midcap miracle is Builders FirstSource. The company, which sells building materials to contractors, has seen shares surge more than 85% this year. That puts the company's value at $15.5 billion. And then there's Dynatrace, a computer security firm. This S&P 400 company is now worth $15 billion thanks to its 34.8% jump this year.
Given the S&P 500's outperformance this year, it's totally understandable why investors are fixated on the largest stocks. But up-and-coming midcap stocks serve up a reminder that the big-cap rolls can — and will — change.
Big Enough To Be S&P 500 Large Caps
Most valuable S&P 400 stocks
| Company | Ticker | YTD | Market value ($ billions) | Sector |
|---|---|---|---|---|
| Hubbell | 36.5% | $17.2 | Industrials | |
| Builders FirstSource | 87.1 | $15.6 | Industrials | |
| Dynatrace | 33.7 | $14.9 | Information Technology | |
| Reliance Steel & Aluminum | 26.5 | $15.1 | Materials | |
| Westlake | 11.9 | $14.6 | Materials | |
| Graco | 28.0 | $14.5 | Industrials | |
| Jabil | 54.5 | $13.9 | Information Technology | |
| Deckers Outdoor | 28.4 | $13.4 | Consumer Discretionary | |
| Watsco | 47.0 | $13.3 | Industrials |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
