Stocks for the Long Run: Owens & Minor 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 broad S&P 500. 

Step on up, Owens & Minor (NYSE: OMI  ) .                                    

Owens & Minor shares have slightly underperformed the S&P 500 over the last quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 8.9% a year, compared with 9.7% a year for the S&P (both include dividends). That difference adds up. One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Owens & Minor, it'd be worth $15,300.  

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about 60% of Owens & Minor's total returns. For the S&P, dividends account for 39% of total returns.

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

Source: S&P Capital IQ.

Pretty good outperformance here. Since 1995, Owens & Minor earnings per share have increased by 12.5% per year, compared with 6% a year for the broader index. 

What's that meant for valuations? Owens & Minor has traded for an average of 20 times earnings since 1987 -- below the 24 times earnings of the broader S&P 500.

Through it all, shares have been fairly average 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 Owens & Minor with a five-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Owens & Minor 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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  • Report this Comment On October 24, 2012, at 6:37 PM, Carioca58 wrote:

    Your first chart would look quite different if, instead of looking at the last 25 years, you looked at the last 15 years. That would show OMI far outperforming S&P.

    On the other hand, if you compared the last 5 years, S&P advantage would be far more pronounced! I am not recommending to time the market, but sometimes a good stock can be at a very expensive price point!

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