Stocks for the Long Run: Murphy Oil 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, Murphy Oil (NYSE: MUR  ) .

Murphy Oil shares have underperformed the S&P 500 over the last three decades:

Source: S&P Capital IQ.

Since 1980, shares have returned an average of 9.4% 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 Murphy Oil, it'd be worth $17,500.

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

Now have a look at how Murphy Oil earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Pretty good outperformance, but there's a lot of volatility. Since 1995, earnings per share have grown by an average of 12.4% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Murphy Oil has traded for an average of 22 times earnings since 1980 -- not much different than the 21 times earnings for the S&P 500.

Through it all, shares have been slight disappointments 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 Murphy Oil with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Murphy Oil 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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