Stocks for the Long Run: Anadarko Petroleum 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. He says that way "you'll be buying into a wonderful industry, which in effect is all of American industry."

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, Anadarko Petroleum (NYSE: APC  ) .                            

Anadarko Petroleum shares have easily outperformed the S&P 500 over the last quarter-century, with most of the outperformance occurring in the last decade:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 11.1% 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 Anadarko Petroleum, it'd be worth $29,300.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about 19% of Anadarko Petroleum's total returns. For the S&P, dividends account for 39% of total returns.

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

Source: S&P Capital IQ.

Pretty average here, albeit with much more volatility. Since 1995, Anadarko Petroleum earnings per share have increased by an average of 6.3% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Anadarko Petroleum has traded for an average of 40 times earnings since 1987 -- above the 24 times earnings of the broader S&P 500. It's far different today, however. Anadarko currently trades for about 17 times next year's expected 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 Anadarko Petroleum with a four-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Anadarko Petroleum 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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