US Mega-Caps Look Set To Outperform As Valuations Diverge

In an across-the-board great year for equities, small-cap and value stocks outperformed in 2013 to the point that even Apple Inc. (NASDAQ:AAPL) starting showing up on some analysts lists of ‘value stocks’. Simple regression to the mean arguments would argue in favor of large-cap companies in 2014, but the growth of activist shareholders and the money flow story give investors more reason to be interested in large domestic firms.

“History is not always a perfect guide, but a variety of factors argue convincingly for large caps over their smaller cap counterparts after several years of small cap outperformance,” writes Citi analyst Tobias M. Levkovich. The largest 25 companies on the S&P 500 (INDEXSP:.INX) are trading at about a 10% discount relative...