Stocks for the Long Run: Noble 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, Noble (NYSE: NE  ) .

Noble 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 13.8% 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 Noble, it'd be worth $62,500.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about 10% of Noble's total returns. For the S&P, dividends account for 39% of total returns.

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

Source: S&P Capital IQ.

Good outperformance here, albeit with much more volatility. Since 1995, Noble earnings per share have increased by an average of 11.3% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Noble has traded for an average of 33 times earnings since 1987 -- above the 24 times earnings for the broader S&P 500. It's far different today, however. Noble currently trades for about eight 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 Noble with a five-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Noble to My Watchlist

Motley Fool Staff has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.


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