Which of these 4 FTSE mega-caps would I buy?

These FTSE mega-cap all have market valuations exceeding £100bn. But which of these four London whales would be my first pick to own right now?

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The total value of all companies in the UK’s FTSE 100 index is around £2.06trn. However, the index is dominated by 10 mega-cap companies, whose combined value comes to more than half of the Footsie’s total valuation.

Four FTSE 100 mega-caps

Right now, these are the four largest FTSE firms:

CompanySectorMarket capShare price12-month change
ShellOil & gas£175.5bn2,534p30.3%
HSBC HoldingsBanking£124.3bn624.6p14.2%
UnileverConsumer goods£106.5bn4,217p9.5%

Each of these FTSE firms is a super-heavyweight in its field, with even the smallest worth well over £100bn. (And only two other Footsie companies have valuations above £99bn.)

I immediately noticed that all four shares have risen in value over the past year. Also, all four have beaten the wider FTSE 100, which is up 6.9% over 12 months. So maybe there is some truth in the old saying about big being beautiful?

I don’t own any of these super-stocks

For the record, my wife and I don’t any of these four individual stocks in our family portfolio. To be honest, this came as a minor surprise to me.

Then again, the combined market value of these four businesses comes to £584bn, or more than a quarter (28.3%) of the FTSE 100’s total capitalisation. Therefore, we already have significant exposure to these giant companies through our UK and FTSE 100 index-tracking funds.

Which of these ‘London whales’ would I buy today?

As a veteran value investor, I hunt for bargains by looking to basic share fundamentals. Here are the core figures for these four ‘London whales’:

CompanyPrice-to-earnings ratioEarnings yieldDividend yieldDividend cover
HSBC Holdings12.48.1%3.5%2.3

The first thing I’d do is reject the shares of Big Pharma firm AstraZeneca. Based on fundamentals, these shares look very expensive to me. Then again, this is a growth company with potentially glowing future prospects. Hence, other investors are happy to pay a premium to own this stock. All the same, it’s not for me.

As for the three remaining mega-cap stocks, all look reasonably cheap to me. In particular, I’d snap up a bunch of Shell shares in a heartbeat, if I only could. After all, they offer a decent cash yield covered a whopping five times by earnings.

However, my wife has adopted ethical and environmental requirements for investing, so she prefers us not to buy oil & gas producers’ stock. So I’ll have to pass on Shell, despite it looking like a bumper bargain to me.

Moving on to HSBC Holdings, shares in the global mega-bank also look undervalued to me. But this group has significant exposure to China and Hong Kong. I’m not keen to be exposed to these two regions right now, largely due to worsening US-China relations. So HSBC is also out.

Finally, that leaves consumer-goods giant Unilever, a company I’ve admired for decades for its sales growth and steadily rising cash dividends. At their 52-week low, these shares slumped to 3,267.5p in March 2022. I’d gladly have snapped them up at this low, low price.

Hence, with a well-covered dividend yield and reasonable price rating, Unilever is my pick of these London mega-caps!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D'Arcy has no position in any of the shares mentioned. HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has recommended HSBC Holdings and Unilever Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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