June 18 (Bloomberg) -- The largest U.S. companies are beating the average stock in the Standard & Poor’s 500 Index by the most in more than a decade, fueled by rising dividends, valuations 31 percent below the historical average and fear.
Companies in the S&P 100 from Apple Inc. to Bank of America Corp. have gained 7.7 percent in 2012, compared with 5.1 percent for a version of the S&P 500 that strips out weightings for market value, the widest margin since 1999, data compiled by Bloomberg show. With price-earnings ratios down 6.6 percent this quarter to 12.7 and payouts at 2.2 percent of share prices, analysts raised buy recommendations for the group to the highest level since 2007.
The biggest stocks are showing corporate America’s resilience even though Mitt Romney, the presumptive Republican candidate in this year’s national election, criticized President Barack Obama earlier this month for saying the private sector is “doing fine.” A second year of record profits is helping the S&P 100 beat every developed market index in the world as investors seek the relative safety of the U.S. after $5.1 trillion was erased from global equities since March 27.
“The mega-caps are just cheap compared to other segments of the stock market,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a June 14 phone interview. His firm oversees $3.68 trillion. “There are a lot of things that are wrong in the economy, to state the obvious, and these are companies that have the wherewithal to survive.”
The performance is a reversal of the last three years. The S&P 100, tracking companies with an average market value of $82.2 billion, climbed 77 percent between March 9, 2009, and the end of 2011, compared with 128 percent for the wider index’s average company, which has a market capitalization of $25.5 billion. The measure of larger companies is down 26 percent since the peak of the 1990s Internet rally in March 2000 compared with a 75 percent increase in the equal-weighted index, data compiled by Bloomberg show.
Bigger companies in the S&P 500 last beat the full index by a greater margin in 1999, just as the technology bubble was peaking. At the end of that year, the S&P 500’s 10 largest constituents made up 25.2 percent of the index, compared with less than 21 percent now. The S&P 100 climbed 31 percent and beat the 500-member measure by 11.7 percentage points in 1999, the largest gap since at least 1976, according to data that began that year compiled by Bloomberg.