Take a glance at your portfolio, and chances are you'll spot a stock or two that seems to have been just sitting there forever, doing nothing. Its lackluster performance may lead you to assume that the company behind that stock is also doing nothing, and make you consider trading it in for a better performer.
Unfortunately for you, that could be a very bad move.
Where a stock has been (or hasn't been) is far less important than where it may go. If a stock has already doubled or quadrupled for you, great! But whether you hang on or sell should depend on what you expect it to do in the future, not on its past.
Consider these fairly well-known names, whose stocks have pretty much languished over the past decade:
|
Company |
10-Year Avg. Annual Return |
|---|---|
|
Abbott Labs |
2.4% |
|
Home Depot |
(1.1%) |
|
Qualcomm |
0.8% |
|
Paychex |
(1.5%) |
|
Sysco |
2.8% |
Data: Yahoo! Finance.
Keep in mind that some of this "languishing" still beat the market! Including dividends, the S&P 500 posted an annual gain of less than 1% over the period.
Quiet growth
While these stocks weren't making anyone rich, look at what the companies were doing with their revenue, earnings per share (EPS), and dividends:
|
Company |
Revenue Growth in Past 10 Years |
EPS Growth Past 10 Years |
Dividend Growth Past 10 Years |
|---|---|---|---|
| Abbott Labs | 148% | 71% | 127% |
| Home Depot | 47% | 68% | 481% |
| Qualcomm | 310% | NM* | NM* |
| Paychex | 132% | 97% | 276% |
| Sysco | 74% | 120% | 270% |
Data: Morningstar. NM = not meaningful; Qualcomm went from a loss of $0.37 per share and no dividend 10 years ago to a profit of $1.96 per share and a dividend of $0.72 over the past 12 months.
Companies like these can represent compelling bargains, if their stock price hasn't yet caught up with the healthy pace at which they're growing.
Abbott Labs has turned ordinary people into millionaires with its steady growth and powerful dividends. Qualcomm has a competitive advantage in its proprietary technologies for smartphones and other products. Paychex and Sysco have been dividend dynamos, and along with Home Depot, they stand to benefit considerably as the economy turns around.
Don't despair if some of your stocks seem to be just sitting there -- or worse. Look beyond the stock price at their actual financial performance, and think about their competitive position and prospects. Remember that the future matter most -- and that stock prices and intrinsic value don't necessarily move in lockstep.
For great stock ideas, check out our free report, 5 Stocks the Motley Fool Owns ... And You Should Too.
