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In the latest look at the underlying components of the S&P 500 ordered by largest market capitalization, Medtronic, Inc. (NYSE:MDT) has taken over the #68 spot from Costco Wholesale Corp (NASDAQ:COST), according to The Online Investor.
Market capitalization is an important data point for investors to keep an eye on, for various reasons. The most basic reason is that it gives a true comparison of the value attributed by the stock market to a given company's stock. Many beginning investors look at one stock trading at $10 and another trading at $20 and mistakenly think the latter company is worth twice as much — that of course is a completely meaningless comparison without knowing how many shares of each company exist. But comparing market capitalization (factoring in those share counts) creates a true "apples-to-apples" comparison of the value of two stocks. In the case of Medtronic, Inc. (NYSE:MDT), the market cap is now $41.86 billion, versus Costco Wholesale Corp (NASDAQ:COST) at $41.57 billion.
Below is a chart of Medtronic, Inc. versus Costco Wholesale Corp plotting their respective size rank within the S&P 500 over time (MDT plotted in blue; COST plotted in green):
Below is a three month price history chart comparing the stock performance of MDT vs. COST:
Another reason market capitalization is important is where it places a company in terms of its size tier in relation to peers — much like the way a mid-size sedan is typically compared to other mid-size sedans (and not SUV's). This can have a direct impact on which mutual funds and ETFs are willing to own the stock. For instance, a mutual fund that is focused solely on Large Cap stocks may for example only be interested in those companies sized $10 billion or larger. Another illustrative example is the S&P MidCap index which essentially takes the S&P 500 index and "tosses out" the biggest 100 companies so as to focus solely on the 400 smaller "up-and-comers" (which in the right environment can outperform their larger rivals). So a company's market cap, especially in relation to other companies, carries great importance, and for this reason we at The Online Investor find value to putting together these rankings daily.
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