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Stocks for the Long Run: Archer Daniels Midland 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, Archer Daniels Midland (NYSE: ADM  ) .

Archer Daniels Midland shares have slightly underperformed the S&P 500 over the past three decades:

Source: S&P Capital IQ.

Source: S&P Capital IQ.

Since 1980, shares have returned an average of 10.2% a year, compared with 11.1% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Archer Daniels Midland, it'd be worth about $22,000.

Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up one-third of Archer Daniels Midland's total returns. For the S&P, dividends account for 41.5% of total returns.

Now have a look at how Archer Daniels Midland earnings compared with S&P 500 earnings:

Source: S&P Capital IQ.

Source: S&P Capital IQ.

Again, not too different from the index. Since 1995, earnings per share have grown by an average of 6.2% a year, compared with 6% a year for the broader index.

What's it all meant for valuations? Not much. Archer Daniels Midland has traded for an average of 20 times earnings since 1980 -- close to the 21 times earnings for the broader S&P 500.

Through it all, shares have been roughly average performers over the past three decades.  

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Archer Daniels Midland with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Archer Daniels Midland 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 don't 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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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 July 04, 2012, at 5:14 PM, opedbyme wrote:

    buy the index or buy the individual stock:

    I'll buy the stock thank you and take my chances.....the index is a tad to banal for me whereas the individual stock is...well... individual. Do you want to talk specifics or commonality. Your choice. Of course you could choose Bungle over ADM....or maybe buy both...or hell...just buy the index. Fool on. I own ADM and to date am rather disappointed (soooo far)....but maybe things will change.....for sure both are rather stoogy, concervative, boring to the bone stocks....but we got to eat and we got to invest

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