Ticker&TapeMarket cap, sectors and industries
Two questions help you place any stock on the map: how big is the company, and what business is it in? Market cap answers the first, sectors and industries answer the second.
Market capitalization
Market capitalization (market cap) is the total value the market puts on a company: the share price multiplied by the number of shares outstanding. A stock at $50 with 200 million shares has a market cap of $50 x 200 million = $10 billion.
This is why the share price alone says nothing about size. A $20 stock with 5 billion shares is a $100 billion company, five times bigger than a $400 stock with 50 million shares ($20 billion). When people say a company is 'big' or 'small', they mean market cap, not price.
Size classes
Stocks are grouped by market cap into size classes. The cutoffs are conventions and vary by source, but the table at the end of this lesson shows common ranges. Below small caps are micro caps, which are often very illiquid.
Size changes how a stock behaves. Mega and large caps are usually more liquid (millions of shares trade every day) and move more steadily. Mid and small caps can grow faster because they start from a smaller base, but they are more volatile, can have thin volume and can fall harder in a weak market. The S&P 500 tracks large companies; the Russell 2000 tracks small ones.
Most major indexes are weighted by market cap, so the biggest companies move them the most. A handful of mega caps can push the S&P 500 up even while most stocks fall, which is one reason to also watch market breadth.
The 11 GICS sectors and their industries
To compare similar businesses, stocks are classified with the GICS system (Global Industry Classification Standard). It has four levels: sector, industry group, industry and sub-industry. A chip maker, for example, sits in Information Technology, then in the Semiconductors & Semiconductor Equipment group, then in the Semiconductors industry. The 11 sectors are:
- Information Technology: software, hardware, semiconductors.
- Health Care: drug makers, biotech, medical devices, insurers.
- Financials: banks, insurance, brokers, payment companies.
- Consumer Discretionary: retailers, cars, restaurants, travel.
- Communication Services: internet platforms, media, telecom.
- Industrials: aerospace, machinery, transport, construction.
- Consumer Staples: food, drinks, household products.
- Energy: oil, gas and related services.
- Utilities: electricity, water and gas providers.
- Real Estate: property owners and real estate trusts.
- Materials: chemicals, metals, mining, packaging.
Growth vs value
A growth company is growing sales and earnings fast, often 20% a year or more, and reinvests most of its profit. Investors usually pay a high price relative to current earnings because they expect much bigger earnings later. A value company grows more slowly, trades at a lower price relative to its earnings, and often pays dividends.
Growth companies cluster in technology, health care and consumer discretionary; value companies are common in financials, energy and utilities. Neither style is always better: each leads in different periods, and a company can move from one group to the other as it matures.
Why sector and industry group leadership matters
Stocks rarely move alone. A large part of any stock's move comes from its sector and industry group. When money flows into semiconductors, most chip stocks rise together; when it leaves, even good chip companies struggle.
That is why big winners tend to come in packs. If several top stocks in one group are breaking out at the same time, the group is strong, and the best stock in it has the wind at its back. A great-looking chart in a weak group is a harder trade. Check which groups are leading on the Groups page and the Heatmap, and learn to spot the strongest names in leaders and laggards.
Common size classes (approximate)
| Mega cap | Above about $200 billion |
|---|---|
| Large cap | About $10 billion to $200 billion |
| Mid cap | About $2 billion to $10 billion |
| Small cap | About $300 million to $2 billion |
| Micro cap | Below about $300 million |
Common mistakes
- Judging a company's size by its share price instead of its market cap.
- Trading small caps with the same position size as mega caps, ignoring their bigger swings and thinner volume.
- Buying a stock in a weak, lagging group just because its own chart looks fine.
- Assuming a rising S&P 500 means most stocks are rising, when a few mega caps may be carrying it.
Key points
- Market cap is price times shares outstanding, and it is the real measure of size.
- Smaller companies can grow faster but are more volatile and less liquid.
- GICS sorts stocks into 11 sectors, then industry groups, industries and sub-industries.
- Leading stocks usually belong to leading groups, so check group strength before buying.
Check what you learned
Answer at least 2 of 3 correctly to complete the lesson.
1. Stock A trades at $300 with 100 million shares. Stock B trades at $30 with 2 billion shares. Which company is bigger?
Market cap is price times shares: A is $30 billion and B is $60 billion. Share price alone says nothing about size.
2. Why can a few mega caps push the S&P 500 higher while most stocks fall?
In a market-cap-weighted index, a giant company moves the index far more than a small one, so a few large winners can hide weak breadth.
3. Two stocks have similar-looking charts. One is in the strongest industry group, the other in one of the weakest. Which is usually the better candidate?
A large part of a stock's move comes from its group. Money flowing into the group lifts its members, while a weak group drags them down.
See which industry groups are leading → Try it on Ticker&Tape