With the Reserve Bank of Australia cutting the cash rate to a record low 2.75% yesterday, interest in shares is likely to reach new heights as investors look to generate better returns on their cash.
Thus one of the first questions investors will want to answer for themselves is whether large or small companies — marquee names or smaller, lesser known companies — are the best bet for good returns, especially as the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO), representing the nation’s largest companies by market cap, has already risen 11% this year.
The largest companies in Australia
There are no prizes for guessing Australia’s largest company: dual-listed mining giant BHP Billiton (ASX: BHP). With a market cap of nearly $180 billion, this global byword for iron ore and resources dwarves even the next closest company, Commonwealth Bank (ASX: CBA), with its $115 billion market cap.
Coming in at number three is (also dual-listed) miner Rio Tinto (ASX: RIO) at about $105 billion and then Westpac (ASX: WBC) at $102 billion and finally Australia and New Zealand Banking Group (ASX: ANZ) with a market cap of $85 billion.
In all, it’s a snapshot of Australia’s economy, driven by resources and financial services.
A bubble? And where to look for growth
Yet for investors looking for growth, these huge companies may not actually pose the market’s best opportunities.
For instance, even as Commonwealth Bank, Westpac and ANZ shares have risen by nearly 36%, over 43% and 36% respectively in the last twelve months, their profit growth over this same period has been somewhat underwhelming — a phenomenon that’s led some analysts to conclude there is a “bubble” in bank shares.
In fact, many savvy investors are now seeking growth in smaller companies. Discover two stellar small-cap opportunities now, in our brand-new research report, “2 Small Cap Superstars” — simply click here to download your FREE copy.
Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.