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Many investors have panicked this year due to the onset of a bear market. Market sentiment is remarkably negative right now due to the surge of inflation to a 40-year high and fears that the aggressive interest rate hikes of the Fed may cause a recession. Mega-cap stocks, which have market capitalizations in excess of $200 billion, may prove attractive candidates for risk-averse investors, as they are less volatile and more resilient to downturns than mid-caps and small-caps in principle. In this article, we will discuss the prospects of three mega-cap stocks, namely Thermo Fisher Scientific (TMO), JPMorgan & Chase (JPM), and Broadcom (AVGO), which are attractive right now.
 

Thermo Fisher Scientific

Thermo Fisher Scientific is the global leader in serving complex analytical challenges, helping its customers accelerate life sciences research, improving patient diagnostics, and increasing productivity in global laboratories.

While most companies have been negatively affected by the coronavirus crisis, Thermo Fisher has greatly benefited from this crisis, as its healthcare business has been thriving in the last two years. Nevertheless, even before the pandemic, Thermo Fisher exhibited an admirable performance record. During the last nine years, the company has grown its earnings per share more than 6-fold, from $3.24 in 2012 to $19.62 in 2021. Even better, it has exhibited enviable consistency, as it has grown its bottom line every single year during this period. A consistent growth record is paramount, as it usually reflects a rock-solid business model and high-quality management.

Moreover, there are no signs of fatigue on the horizon. Thermo Fisher has ample room to keep growing for many more years by expanding its global presence and acquiring other companies. The company is facing a headwind from inflation this year but we view this headwind as temporary. Given the exceptional performance record of Thermo Fisher and the ample room for future growth, we expect it to grow its earnings per share by 10% per year on average over the next five years.

Income-oriented investors are likely to be disappointed by the 0.2% dividend of the stock. However, it is important to realize that the company prefers to use its excess cash flows to invest heavily in growth projects. This capital strategy has rewarded the shareholders to the extreme, as evidenced by the 889% rally of the stock in the last decade, and hence investors should praise management for its policy.
 

JPMorgan & Chase

JPMorgan was founded in 1799 as one of the first commercial banks in the U.S. Since then, it has merged or acquired more than 1,200 institutions and thus it has created a global banking giant, with a market capitalization of $332 billion and $124 billion in annual revenue. JPMorgan competes in every major segment of financial services, including consumer banking, commercial banking, home lending, credit cards, asset management, and investment banking.

Thanks to its immense scale, JPMorgan enjoys some competitive advantages, including its world-class reputation and its diversified revenue streams. On the other hand, just like most banks, JPMorgan has proved vulnerable to recessions. The bank suffered during the Great Recession when it was forced to cut its dividend, while it also incurred a 17% decrease in its earnings per share in 2020 due to the pandemic.

Moreover, due to the headwind from the ongoing war in Ukraine and the deceleration of the global economy, JPMorgan is poised to incur an approximate 25% decrease in its earnings per share this year. On the other hand, we view the current headwinds as temporary and expect this financial giant to begin to recover next year.

Furthermore, due to its 30% decline this year, the stock has become remarkably attractive. It is currently trading at a forward price-to-earnings ratio of 10.2, which is a nearly 9-year low valuation level. In addition, the stock is offering a 10-year high dividend yield of 3.5%. As the company has a solid payout ratio of 35%, it can cover its dividend with a wide margin of safety. Overall, patient investors, who can purchase JPMorgan at its current price and maintain a long-term perspective in the ongoing global economic downturn, are likely to be excessively rewarded by the stock in the long run.
 

Broadcom

Broadcom designs develop and sell semiconductors under the following business units: Wired infrastructure, wireless communication, enterprise storage, and industrial. Its offerings include data center chips, factory automation, energy systems, and power generation, broadband access, and home connectivity. Broadcom is a fabless semiconductor company, i.e., its products are manufactured by other companies.

Broadcom has exhibited an impressive performance record over the last decade. To be sure, the company has grown its earnings per share approximately 10-fold over this period. It is also remarkable that Broadcom has grown its bottom line every single year over the last decade. The exceptional growth rate and consistency of Broadcom are testaments to the strength of its business model and its perfect execution.

Broadcom has achieved this exceptional growth record, not only via organic growth but also thanks to a long series of successful acquisitions. The most important acquisition was the merger with Avago Technologies in 2015, but many other acquisitions have proved meaningful growth drivers as well.

Thanks to its impressive earnings growth, Broadcom has grown its dividend at an eye-opening average annual rate of 41% over the last decade. Moreover, the stock is currently offering a nearly 10-year high dividend yield of 3.3%, which is rare for a high-growth stock. Given its healthy payout ratio of 43%, its solid balance sheet, and its reliable growth trajectory, Broadcom is likely to continue raising its dividend meaningfully for many more years, albeit at a slower than its historical pace.
 

Final Thoughts

The ongoing bear market has caught off-guard most investors, who are wondering how to protect their portfolios from bleeding. The above three mega-cap companies have exhibited strong business performance over the long term and have become markedly attractive due to their recent correction. As a result, those who purchase them around their current prices are likely to be highly rewarded in a few years.