Stocks for the Long Run: Apache 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 individual stocks have performed against the broader S&P 500.

Step on up, Apache (NYSE: APA  ) .

Apache shares have easily outperformed the S&P 500 over the last quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 14.1% a year, compared with 9.7% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Apache, it'd be worth $67,950.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up 25% of Apache's total returns. For the S&P, dividends account for 39% of total returns.

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

Source: S&P Capital IQ.

That's huge outperformance. Since 1995, earnings per share have increased by an average of 21.1% per year, compared with 6% annual growth for the broader index.

What has that meant for valuations? Apache has traded for an average of 21 times earnings since 1987 -- a bit below the 24-times-earnings average of the S&P 500. It's far different today, however. Apache currently trades at eight times next year's earnings.

Through it all, shares have been strong performers over the last quarter-century.

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

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


Read/Post Comments (2) | Recommend This Article (1)

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  • Report this Comment On August 29, 2012, at 1:39 PM, slpmn wrote:

    Looks to me much of the outperformance occured prior to about 2005. Since then more than a little volatility has been sprinkled in with the outperformance. On a risk-adjusted basis, I wonder if it has outperformed at all in recent years.

    Average returns are nice to talk about and are even meaningful to consider - but small investors need to understand that volatility means something, too.

  • Report this Comment On August 29, 2012, at 5:09 PM, Glober00 wrote:

    You forgot to mention that Apache is currently conducting Seismic surveys in Alaska with new technologies that were not available 5 years ago.

    Revisiting abandon oil reserve sights with this new

    Technology has identified potentially massive reserves that right here in our homeland.

    The stock will go up substantially in the next several months

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