Sometimes I'm slow. For example, I collect interesting possible topics to write about, and I don't always get to them all in a timely fashion. I was just reviewing my collection the other day, and I ran across a tidbit from January 2006. It was a Jon Markman article from MSN Money, listing and discussing the most consistently rising stocks of the past decade (that would be 1996 to 2006).
As I perused the list, now with the benefit of hindsight, I found it rather interesting. Below are the top seven names, along with their average annual gain during the period. (Remember, each of them gained in value each year, not posting a negative year in the whole decade.)
|
Company
|
Average annual gain, 1996-2006
|
|
Chico
's FAS (:CHS)
|
90%
|
|
SCP Pool (:POOL)
|
57%
|
|
Expeditors International (NASDAQ:EXPD)
|
46%
|
|
Center Financial (NASDAQ:CLFC)
|
43%
|
|
Brown & Brown
|
40%
|
|
Florida
Rock Industries
|
35%
|
|
Genlyte (NASDAQ:GLYT)
|
35%
|
Source: MSN Money. Returns as of Jan. 6, 2006.
I love looking at lists like these a few years later. Let's see how these same stocks did in 2006 and 2007:
|
Company
|
2006
|
2007
|
|
Chico's FAS
|
(53%)
|
(56%)
|
|
SCP Pool
|
6%
|
(49%)
|
|
Expeditors International
|
21%
|
11%
|
|
Center Financial
|
(4%)
|
(48%)
|
|
Brown & Brown
|
(7%)
|
(16%)
|
|
Florida Rock Industries
|
(11%)
|
49%*
|
|
Genlyte
|
46%
|
22%
|
*Florida Rock was acquired by Vulcan Materials on Nov. 15, 2007.
So what do these tables tell us? Well, for one thing, be wary of any lists of promising stocks, especially if they're based on a single factor, such as consistency. The tables also remind us that just because a stock has risen for 10 years in a row, that doesn't at all mean that it will keep doing so. It may very well fall a little (or a lot, as some of the above did) in the coming years. The overall economy will also play a role. If we're in a recession, these consistent performers won't necessarily be the best defensive stocks. If financial stocks get hammered, as many have in recent years, financial stocks among these consistent performers will also be vulnerable. If consumers are being pressured by rising fuel and food prices, they may cut back on discretionary clothing purchases, hurting companies such as Chico's FAS.
We're all best off considering a lot of factors when we make our investment decisions. We should examine a company's track record in many areas (revenue and earnings growth, profit margin growth, market share growth), its competitive advantages (and how sustainable they are), its management, and so on.
Consistency isn't everything
Here's a good reminder of how consistency isn't everything: Think of the S&P 500. Investing in it, via an index fund, is a very reasonable thing for most of us to do. We'll get market-matching results, and we'll outperform most mutual funds, typically paying low fees along the way.
Here's another reminder: Check out Tim Hanson's article "The Market's 10 Best Stocks Revealed." The top stock from the past 10 years, Hansen Natural (Nasdaq: HANS ) , with a total return of 19,449%, is down almost 28% so far in 2008. Apple (Nasdaq: AAPL ) , with a 10-year return of 5,937%, is down 19%. Many investors are rather bullish on companies such as Apple -- and that's despite its having gone through more than a few tough years.
Finally, consider this: If a stock has risen consistently, it may not have seemed undervalued very often. It may, therefore, have rarely presented attractive entry points to value-seeking investors.
Let us help
If the thought of lots of stock evaluation and analysis is intimidating, or if you just don't have the time or interest for it, let us help you. Check out our Motley Fool Inside Value newsletter, which seeks companies that are significantly undervalued. Their past performance isn't always very consistent, but in the eyes of our analysts, that's part of what makes them attractive now.
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