Stocks for the Long Run: Halliburton 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, Halliburton (NYSE: HAL  ) .

Halliburton shares have underperformed the S&P 500 over the last three decades. By quite a bit, too:

Source: S&P Capital IQ.

Since 1980, shares returned an average of 6.5% 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 Halliburton, it'd be worth just $7,600.

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

Now have a look at how Halliburton earnings compared with S&P 500 earnings:

Source: S&P Capital IQ.

Perhaps surprisingly given shareholder returns, there's outperformance. Since 1995, earnings per share have grown by an average of 11.9% a year, compared with 6% a year for the broader index.

What's it all meant for valuations? Halliburton has traded for an average of 34 times earnings since 1980 -- markedly higher than the 21 times earnings for the broader S&P 500.

Through it all, shares have been disappointing laggards 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 Halliburton with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Halliburton 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. Motley Fool newsletter services have recommended buying shares of Halliburton. 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 (5) | Recommend This Article (2)

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  • Report this Comment On July 09, 2012, at 1:52 PM, DAG1996MF wrote:

    Wow, thanks for this. It looks like I missed an amazingly simple measure in evaluating HAL and may need to rethink my long position.

  • Report this Comment On July 09, 2012, at 6:29 PM, reidf1 wrote:

    Well I certainly hope it has a turnaround. I am more than $20 in the hole HAL now. Bought at absolute last high, last August.

  • Report this Comment On July 10, 2012, at 4:50 PM, DAG1996MF wrote:

    @reidf1, Personally, I have little doubt that the HAL share price will go much higher than it is right now. I just recently opened my position at the recent lows so my comment was more a reaction to the point of the article -- even though HAL shares may appreciate significantly from current levels, historically, they have performed poorly relative to the broader index. Perhaps that is more relevant to someone like me who is building or considering a new position since it implies that many other stocks may perform much better than HAL going forward (to the degree that one believes that past performance trends will continue).

  • Report this Comment On July 10, 2012, at 5:37 PM, bubbler101 wrote:

    just looking at the 5y chart one could easily surmise hal is either going out of business or to 50 within the next year or so. so now the only dd to do is figure out which situation is more likely.

  • Report this Comment On July 15, 2012, at 3:00 PM, DAG1996MF wrote:

    Well, I've re-evaluated my HAL position and I'm quite comfortable with my decision, but must admit that I'm also quite confused. I only recently opened my position with a $28 average price so my perspective is very different from those who have owned since $50. Considering the various significant headwinds and the company's long history of underperforming the market, does anyone have any idea why analysts have an average price target of $43 (about 45% upside)? Although a couple recent targets are lower and there have been a couple downgrades, many analysts targets were either set or updated in recent months in the $45-48 range. In fact Dahlman Rose updated their buy rating on 6/7 with a price target of $57! That seems very overly optimistic but the drastic difference between so many targets and the current price implies something is being seriously overlooked ... either by ALL of the analysts or by the market. What could it be that would make such a drastic disparity in valuations? Personally, I think it unlikely HAL will take a significant hit from Mocando and, even if it does, they have some pretty deep pockets. The materials costs issue couldn't make that huge of difference alone. Repositioning is always costly, but it doesn't seem that alone could represent half of the company's value either. So what gives!? Can anyone make some kind of sense out of this? I understand that that there will likely be target reductions and that analysts are often wrong, but very rarely are they ALL wrong by 40-60%, especially on a company that has been followed so closely and for so long. See ratings here: http://www.streetinsider.com/rating_history.php?q=HAL

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