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Stocks for the Long Run: Hewlett-Packard vs. the S&P 500

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 members of the S&P 500 have performed compared with the index itself.

Step on up, Hewlett-Packard (NYSE: HPQ  ) .

Hewlett-Packard shares have slightly underperformed the S&P 500 over the last three decades:

Source: S&P Capital IQ.

Since 1980, shares returned an average of 10.4% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Hewlett-Packard, it'd be worth just $23,500.

Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up 44.3% of Hewlett-Packard's total returns. For the S&P, dividends account for 41.5% of total returns.

And now have a look at how Hewlett-Packard's earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Slight outperformance, in fact. Since 1995, Hewlett-Packard's earnings per share have grown by an average of 6.3% a year, compared with 6% a year for the broader index. Despite questionable acquisitions and management fumbles, Hewlett-Packard has been able to keep its earnings power intact.

That earnings-growth dynamic has led to superior valuations, historically. Hewlett-Packard has traded for an average of 23.2 times earnings since 1980, compared with 21.3 times for the S&P (though it's far different today -- HP is now one of the cheapest large-cap companies in the world).

Through it all, shares have been disappointing laggards, historically.

The question is whether that will continue. That's where you come in. Our CAPS community currently ranks Hewlett-Packard with a three-star rating (out of five). Do you disagree? Leave your thoughts in the comments section below, or add Hewlett-Packard to My Watchlist.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 08, 2012, at 12:43 PM, DoctorLewis4 wrote:

    HPQ is a lost company with poor management and a history of bad acquisitions. Years ago HPQ was at the cutting edge of innovation. Now -- not so much.

    If you are a tech investor - pass on this one.

  • Report this Comment On June 08, 2012, at 12:56 PM, Borisbmx wrote:

    Doc, your right, but a new chapter is starting.

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