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, Precision Castparts
Precision Castparts shares have easily outperformed the S&P 500 over the past quarter-century, with most of the outperformance coming in the last decade:
Source: S&P Capital IQ.
Since 1987, shares have returned an average of 18.2% 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 Precision Castparts, it'd be worth $208,800.
Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about 10% of Precision Castparts' total returns. For the S&P, dividends account for 39% of total returns.
Now have a look at how Precision Castparts earnings compare with S&P 500 earnings:
Source: S&P Capital IQ.
Again, big outperformance. Since 1995, Precision Castparts earnings per share have increased by an average of 19% a year, compared with 6% a year for the broader index.
What's that meant for valuations? Precision Castparts has traded for an average of 18 times earnings since 1987 -- below the 24 times earnings of the broader S&P 500.
Through it all, shares have been strong 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 Precision Castparts with a five-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Precision Castparts 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. Motley Fool newsletter services have recommended buying shares of Precision Castparts. 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.