Stocks for the Long Run: McCormick 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, McCormick (NYSE: MKC  ) .

McCormick shares have crushed the S&P 500 over the last quarter-century, and with less volatility:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 15.7% a year, compared with 9.7% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In McCormick, it'd be worth $107,500.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up 43% of McCormick's returns. For the S&P, dividends account for 39% of total returns.

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

Source: S&P Capital IQ.

Big outperformance here, too. Since 1995, McCormick's earnings per share have increased by an average of 10.5% a year, compared with 6% a year for the broader index.

What's that meant for valuations? McCormick has traded for an average of 22 times earnings since 1987 -- just below the 24 times earnings for the broader S&P 500.

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 McCormick with a five-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add McCormick to My Watchlist


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  • Report this Comment On November 17, 2012, at 1:57 AM, CmpsVktr wrote:

    A solid firm with a wide moat trading at an unattractive price.

    At current price of 63.55, I think MKC is trading at 120% of its fair value. I expect it to return 4.4% a year over the next 5 years versus an 8.6% return per year for the S&P 500. S&P 500 is trading at about 94% of its fair value.

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