As companies get bigger, outsized growth in earnings becomes more difficult. However, companies with large competitive advantages can continue to perform well despite their size.
The S&P 500 shot up almost 20% in 2017 buoyed by large gains in some of the largest companies including Apple Inc (NASDAQ: AAPL), Alphabet Inc (NASDAQ: GOOGL), Facebook, Inc (NASDAQ: FB), Amazon.com, Inc (NASDAQ: AMZN) and Netflix, Inc (NASDAQ: NFLX).
In contrast, the ASX 200 returned 7% in 2017 on the bank of declines in the share prices of large caps such as National Australia Bank Ltd. (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia New Zealand Banking Group (ASX: ANZ) and Telstra Corporation Ltd. (ASX: TLS).
Nonetheless, there are large cap companies on the ASX with competitive advantages that can sustain outsized earnings growth in 2018. Here are three that I’d consider buying today.
CSL Limited (ASX: CSL)
CSL is an international biopharmaceutical company that is engaged in the research, development, manufacture, and marketing of vaccines and blood plasma protein biotherapies for the prevention and treatment of rare and serious medical conditions.
CSL makes up approximately 3.8% of the ASX 200 market-cap weighted index. Analysts have forecast growth in earnings per share of 19% in the current financial year, and over 50% in the next 3 years.
REA Group Limited (ASX: REA)
REA Group is a digital advertising company that operates residential, commercial, and share property websites including classifieds and advertising. Its websites include realestate.com.au, realcommercial.com.au, flatmates.com.au, iProperty.com, and myfun.com.
REA Group makes up approximately 0.6% of the ASX 200 weighted by market cap. Analysts have forecast growth in earnings per share of 24% at the end of the current financial year and by a massive 72% at the end of the 2020 financial year.
Sydney Airport Holdings Pty Ltd (ASX: SYD)
Sydney Airport Holdings owns and operates Sydney Airport. The company makes up approximately 0.88% of the ASX 200 weighted by market cap. Analysts have forecast a 12.5% growth in earnings per share in the 12 months to June 2018, and 37.5% through to June 2020.
Outsized growth is possible for large cap companies where there exists a strong competitive advantage. CSL Limited, REA Group and Sydney Airport Holdings have such advantages and are forecast to deliver strong growth over the next 12-36 months.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Stewart Vella owns shares of Amazon, Apple, CSL Ltd., and REA Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Netflix. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Telstra Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, Apple, Facebook, Netflix, and REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.