Stocks for the Long Run: Air Products & Chemicals 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, Air Products & Chemicals (NYSE: APD  ) .

Air Products & Chemicals shares have moderately outperformed the S&P 500 over the last three decades:

Source: S&P Capital IQ.

Since 1980, shares returned an average of 12% a year, compared with 11.1% a year for the S&P (both include dividends). Even that small difference adds up. One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Air Products & Chemicals, it'd be worth $38,000.

Now have a look at how Air Products & Chemicals earnings compared with S&P 500 earnings:

Source: S&P Capital IQ.

Again, modest outperformance. Since 1995, Air Products & Chemicals' earnings per share have grown by an average of 7.7% a year, compared with 6% a year for the broader index.

What's it all meant for valuations? Not much. Air Products & Chemicals has traded for an average of 22 times earnings since 1980 -- not much different than the 21 times for the broader S&P 500.

Through it all, Air Products & Chemicals shares have been outperformers over the last three decades.  

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Air Products & Chemicals with a five-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Air Products & Chemicals 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.


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