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Valuation and Concentration of Top 5 Market Cap Stocks in S&P 500

To expand on our previous article, Will the Mega Cap Dominance Continue?, we’ve overlaid an valuation analysis on the Top 5 Market Cap Stocks in S&P 500.

2020 Q1 delivered a “flight to safety” with preference towards megacap stocks assumed to better navigate a prolonged economic shutdown. This trend seemingly reversed in Q2 as investors began to consider the possibility of a more rapid recovery, especially prior to the June 8th close where the equal-weighted return of smaller cap stocks was 46.1% compared to 28.8% for the largest five stocks by market cap and 23.0% for the next 95 largest stocks.

Following the reversal on 6/8, stocks generally declined with the exception of the top five stocks by market cap (AAPL, MSFT, AMZN, GOOGL, and FB), which continued to appreciate by 5.8% on a cap-weighted basis. The impact of this trend on cap-weighted passive benchmarks and style-based indices bears further observation.

As of 6/30, this group of 5 stocks compromised 22.4% of the S&P500 (expanding to 23.6% by 7/10), exceeding any level of top five concentration observed over AFG’s research horizon. Concentration peaked at 18.3% in the tech bubble, with CSCO and GE notably trading at implied forecasted sales growth levels in excess of 55%. For additional reference, we have also mapped the top 5 stocks at the end of each calendar year in the table below.

While increased concentration certainly erodes the diversification characteristics of passive indices (and more so growth indices, which we will review shortly), it is important to note that despite concentration levels unseen since the early 1970s, this group of 5 stocks currently offers reasonable valuation characteristics.

The average default Percent to Target for these 5 stocks has recently fallen to -30%, compared to -60% in early 2000. Analysis of implied sales growth (using 3-year median inputs), however, highlights that AAPL, GOOGL, and FB trade at prices that reflect implied sales growth below +2 forecasted growth, while MSFT and AMZN prices imply sales growth roughly 15% above consensus. The valuation characteristics of these five stocks warrants ongoing monitoring to ensure valuation does not deteriorate.


  • Intrinsic Value. -A firm’s estimated equity value derived from Applied Finance’s Economic Margin® valuation framework. Applied Finance has used its Economic Margin® valuation framework to calculate over 20 million out of sample valuations since 1998, incorporating Applied Finance’s proprietary risk and Economic Profit Horizon™ estimates… more
  • Percent to Target – Current – Compares the intrinsic value estimate to the most recent closing price for each firm.


  • Applied Finance, a thought leader in valuation and portfolio construction, is a true “value” investment management company.  Unlike the majority of firms today that focus on low multiples to define “value”, we define value as identifying companies trading below their intrinsic value.  Our Valuation Driven™ approach forms the foundation of our investment decisions...more


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