There was some cheering last week when US-listed Nvidia hit a market cap of $1trn. In doing so (albeit briefly), it entered a very exclusive club. There have only been nine stocks to have ever reached this market cap, none of which have come from the UK. So which UK share could be the first to join, and does it make sense to buy in anticipation of this?
The potential contenders
The largest stocks are almost exclusively listed in the US. Of the current top 10 largest companies, eight are American listings.
In fact, the largest UK stock is AstraZeneca, all the way down at number 41. It has a market cap of $226bn. Next in line is Shell, further down with a market cap of $197bn. The two other notable large cap stocks that I’d flag up are HSBC ($151bn) and Unilever ($127bn).
It’s quite something to think that the biggest company listed in the UK is almost a drop in the ocean compared to the $2.8trn valuation of Apple.
Why it’s an uphill journey
If one of the four UK stocks mentioned becomes part of the $1trn club, something special will need to happen. I say this because all four are mature stocks that have been listed for decades.
For example, consider HSBC. At the height of the boom period for banking back in 2007, it had a market cap of $270bn. Since then, the financial crisis, tighter regulation and a more competitive banking landscape have hindered the growth of the business.
Even though I think investors can get a good return (and a healthy dividend yield) from HSBC shares, I just don’t see it getting back to pre-2008 size. Not only that, but even if it did, we’d still need to see it double and double again to get over $1trn!
A company of that size will find it difficult to grow revenues and profits to such a level where investors can justify such a lofty valuation. This applies to AstraZeneca, Shell and Unilever too.
Other options to consider
Based on the potential for growth, I’d say that Shell is the most likely to reach $1trn. However, one major caveat is that I struggle to see any UK stocks reaching this landmark any time soon.
For investors hunting for large returns, I much prefer to look at smaller-cap stocks. Here, there’s the potential for the market value to grow substantially as the businesses are much smaller in nature and are still often in their dynamic growth phases..
It doesn’t have to be penny stocks though. Both Virgin Money and 4imprint are FTSE 250 companies, but I feel have the potential to double in value from their current prices.
So although the $1trn club will continue to capture headlines, I don’t think any UK stocks will be joining it for some time yet. But for a shrewd investor, all this means is fishing among smaller stocks for a potential future big catch.
