The Best Stock To Own

Every investors want to own that dream stocks where it will provide them with high return for as long as possible. For that purpose, people painstakingly pour hundred of pages of annual report and financial news. We want to discover the next Microsoft, those tiny companies that change the world with their little brilliant ideas. Despite all the excitement, I believe that finding the next Microsoft (or Google) is a losing game. The reason is simple. Of all those tiny companies waiting to be the next Microsoft, only a small percentage will ever make it big, perhaps as little as one percent or so. Do you remember how many computer companies are there in the United States during the 1980s? Plenty. Now, the total companies in the industry can be counted by hand.

How about this? Instead of investing in the next Microsoft, why don’t we invest in the current Microsoft which is on sale? Now, I don’t literally mean that you invest in Microsoft Corp. (MSFT) stock but rather, you need to find solid quality companies such as Microsoft trading at a discount. Want proof that finding the next Microsoft is a futile effort? Well, an article from Jeremy Siegel, ‘The Best Stock For The Long Term’ lists the best performing stock from S&P 500 from 1957 to 2005, a span of 48 years. The result may surprise you but no Microsoft or Google or Intel of the world appears on the list. In fact, the list appears quite different than one would expect. Here is a glance of the 5 best performing stock for S&P 500.

1. Altria Group (MO) – Average Annual Return: 19.80{4ec66d537739005ccd5ed56e62ee5e9eb3f533a4d07ddf8b17a0db96e01adf11}

2. Bristol Myers Squibb (BMY) – Average Annual Return: 15.79{4ec66d537739005ccd5ed56e62ee5e9eb3f533a4d07ddf8b17a0db96e01adf11}

3. Abbott Labs (ABT) – Average Annual Return: 15.72{4ec66d537739005ccd5ed56e62ee5e9eb3f533a4d07ddf8b17a0db96e01adf11}

4. Merck & Co (MRK) – Average Annual Return: 15.59 {4ec66d537739005ccd5ed56e62ee5e9eb3f533a4d07ddf8b17a0db96e01adf11}

5. Coca Cola (KO) – Average Annual Return: 15.54{4ec66d537739005ccd5ed56e62ee5e9eb3f533a4d07ddf8b17a0db96e01adf11}

A glance shows that the best five performing stocks for S& P 500 are from two industries: consumer products and pharmaceutical companies. If you go down the entire list, you will find similar companies from the like of Procter and Gamble (PG) to Wyeth (WYE) to Hershey Foods (HSY). These companies have already existed way before 1957.

The list goes on further to elaborate that all but one of the stocks on the list pay out an above average dividends. That should be something. I have long felt that dividends are sign of strength and profitability, not weakness. Without profit, one cannot pay sustainable dividends. Furthermore, all of the stocks on the list have a P/E of less than 20 with average earning growth of 9{4ec66d537739005ccd5ed56e62ee5e9eb3f533a4d07ddf8b17a0db96e01adf11}. That agrees with our guidelines of finding fair value of a common stock, mainly by comparing its earning relative to price and interest rate. At current interest rate, a stock with 0{4ec66d537739005ccd5ed56e62ee5e9eb3f533a4d07ddf8b17a0db96e01adf11} growth rate is fairly valued at a P/E of 14.6.

So, the choice is up to you. Do you want to invest in the next Microsoft, Intel or Google? Or do you want to invest in companies with proven histories of profit?