Stocks for the Long Run: Ingersoll-Rand 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, Ingersoll-Rand (NYSE: IR  ) .  

Ingersoll-Rand shares have slightly outperformed the S&P 500 over the past quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 10% a year, compared with 9.7% a year for the S&P (both include dividends). Even that difference adds up. One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In Ingersoll-Rand, it'd be worth $21,000.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about 42% of Ingersoll-Rand's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Ingersoll-Rand earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Pretty average here. Since 1995, Ingersoll-Rand earnings per share have increased by an average of 6.7% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Ingersoll-Rand has traded for an average of 19 times earnings since 1987 -- below the 24 times earnings of the broader S&P 500.

Through it all, shares have been fairly mediocre performers over the past quarter-century.  

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Ingersoll-Rand with a five-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Ingersoll-Rand 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. We Fools don't 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. The Motley Fool has a disclosure policy.

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10/21/2016 4:02 PM
IR $65.76 Down -0.05 -0.08%
Ingersoll-Rand CAPS Rating: ***