Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index like the S&P 500.
That way, "you'll be buying into a wonderful industry, which in effect is all of American industry," he says.
But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how individual stocks have performed against the broad S&P 500.
Step on up, Hormel Foods (NYS: HRL)…
Hormel shares have underperformed the S&P 500 over the past quarter-century...
Since 1987, shares have returned an average of 7% a year, compared with 9.7% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Hormel Foods, it'd be worth just $8,800.
Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about 40% of Hormel Foods' total returns. For the S&P, dividends account for 39% of total returns.
Now have a look at how Hormel Foods earnings compare with S&P 500 earnings...
Good outperformance here. Since 1995, Hormel's earnings per share have grown by an average of 10.1% a year, compared with 6% a year for the broader index.
What's that meant for valuations? Hormel Foods has traded for an average of 18 times earnings since 1987 -- a bit below the 24 times earnings for the broader S&P 500.
Through it all, shares have been slight disappointments over the past quarter-century.
Of course, the important question is whether that will continue...
more, including charts
Source: Argentine Beef Packers S.A.
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