Small Cap or Megacap: Which Healthcare Stock Is Right for You?

Key Points

Larger companies offer more stability but may offer less stock price appreciation.

Smaller companies face more risk but may offer more upside than larger companies.

• 10 stocks we like better than CytomX Therapeutics ›

When looking for investments in the healthcare space, smaller companies tend to be more alluring. They can be working on drugs or releasing drugs with breakthrough potential. Those companies also carry a lot of risk, however, because there's no guarantee those drugs will be approved or be commercial successes.

That's why some investors seek out more-established players in the healthcare market. Those companies can generate reliable revenue, but the potential upside may not be as great as owning shares of a smaller company.

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Let's look at a smaller and a larger company today, highlighting the benefits and risks of each. The small-cap stock is CytomX Therapeutics (NASDAQ: CTMX), and the megacap is Johnson & Johnson (NYSE: JNJ). Which one is right for you?

Weighing risk and reward

CytomX Therapeutics is a clinical-stage company with a market cap of around $1 billion. It's working on cancer treatments, with the company saying on its website that it is "localizing treatment in the tumor and limiting activity in healthy tissue."

It has several drug candidates in its clinical pipeline, and investors are excited about the company's potential to treat late-line colorectal cancer. Over the last year, the stock price has skyrocketed by more than 625%.

The keyword for CytomX is "potential," given that it doesn't have any approved drugs and reported a net loss of more than $20 million in 2025.

As an example of the risks involved in investing in an early-stage company like this, while the stock price has spiked over the last year, investors who have owned it for just over four years are likely sitting on a loss. Over the last five years, the price has dropped roughly 40%. That's the type of volatility to be expected when owning a smaller healthcare stock.

Huge revenue and a huge market cap

Johnson & Johnson is one of the largest healthcare companies on the market, with a towering market cap of about $545 billion.

It offers stability, with a portfolio of approved drugs that helps it generate billions of dollars each year. In 2024, it recorded $88.8 billion in sales; in 2025, that figure jumped to $94.2 billion, and Johnson & Johnson expects to generate between $99.5 billion and $100.5 billion in 2026. As it generates so much money, it also has more resources to build out its pipeline of drug candidates.

The company doesn't offer explosive potential in terms of the percentage by which sales can climb year over year, but what's important is that sales are still growing. That helps Johnson & Johnson generate profits and continuously pay a dividend, and it has increased its payout annually for 64 consecutive years.

The bottom line with healthcare stocks

Investing in a small-cap or a megacap stock comes down to goals and risk tolerance. There's nothing wrong with seeking stock price appreciation, as long as you understand the risks involved with the company. There is room for speculative positions in a portfolio, if you aren't overextending yourself and the position size is appropriate compared to the risk.

Megacap stocks can fit into the portfolios of investors primarily concerned with stability and income. That's not to say larger companies can't provide stock price appreciation -- Johnson & Johnson is up nearly 50% over the last year.

But that type of gain shouldn't be expected consistently, since much of the stock's price movement over the last few years has been driven by its lagging consumer health division being spun off.

When making an investment, knowing your goals and risk tolerance ahead of time can guide the decision of whether a small-cap or a megacap healthcare stock is the right fit for a portfolio.

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Jack Delaney has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.