Today, a very good business reports its numbers. It’s an old economy play that we looked at back in February, and it’s the kind of company that, according to history, you can just tuck away and keep in your portfolio.
The company is Airgas, Inc. (ARG) out of Radnor, PA. It’s not the most exciting enterprise in the world; it’s unlikely you’ll find it featured on CNBC or other media outlets. But it’s exactly the kind of old economy, reliable business that’s very necessary to the economy.
Airgas is a seven-billion-dollar company that pays dividends (currently yielding 1.9%). It sells propane, oxygen, nitrogen, and a lot of other gases used for industrial and medical purposes.
It’s the kind of business that you never think of but is absolutely necessary for basic infrastructure to be created (welding) and for healthcare to be delivered (oxygen, carbon dioxide, helium).
On the stock market, Airgas has mostly been a powerhouse. The position has been trading range-bound for the last six months, but the company’s long-term track record is very solid.
This kind of business is absolutely worthy of consideration for retirement accounts or long-term savings plans. Yes, there will be quarters when a company like this doesn’t meet expectations, but it’s difficult to imagine the demand for welding and medical gases going down systemically.
Just take a look at the company’s long-term stock chart below:
Chart courtesy of www.StockCharts.com
Every business experiences tough times. You can see in the above stock chart that shares for Airgas turned downward in 1997 and took almost nine years to recover. But that’s why businesses like this are for long-term investors who like to collect dividends. The company’s normalized stock market trend is consistent.
Investors might not be interested in an old economy stock at its high, but it’s the kind of business that’s worth following in case of a quarterly miss and/or a major share price retrenchment.
Reporting today, Wall Street doesn’t expect much in the way of growth from this company. Revenues are forecast to grow 1.1% comparatively to $1.27 billion. The average earnings-per-share estimate is $1.15, compared to $1.13 in the same quarter last year.
Clearly, this isn’t a growth story. But I still follow a number of businesses like this, because they are real. They aren’t going away anytime soon and even as mature, old economy stories, many companies like this have actually produced very good long-term returns on the stock market. (See “Why These Old Economy Stocks Are Absolutely Crucial.”)
I like big brand-name companies that pay increasing dividends to shareholders. But I also like esoteric, non-media-hyped businesses that just grind it out every day.
As part of an overall portfolio, I think there’s definitely room for a position like Airgas—an industrial, basic-infrastructure type of company with a proven track record of wealth creation.
It isn’t fancy and it sure isn’t glitzy, but who cares? At the end of the day, it’s the return that counts.