In the equity universe, there are very few stocks that actually boast a consistent, long-term track record of wealth creation for shareholders. Even the bluest of the blue-chip stocks sometimes experience significant trouble on the stock market, and that’s still when these businesses are growing.
Consider the consumer staple business of The Procter & Gamble Company (NYSE/PG), which is one of the world’s most recognizable blue-chip companies. Back in 1999, the company didn’t quite meet Wall Street expectations and the result was a severe selloff in the shares. Even such a “safe” higher-dividend-paying stock like Procter & Gamble got hammered when it didn’t meet the Street’s desire for its earnings. The stock was promptly cut in half and took five full years to recover. Like I say, even the best of the best stocks experience trials and tribulations on the stock market.
One company that boasts one of the most consistent stock market performances in terms of capital gains is well-known PepsiCo, Inc. (NYSE/PEP). Not only does Pepsi make all kinds of sodas and other beverages, but the company also has a burgeoning snack business that recently beat Wall Street consensus in the third quarter. This stock is off about 10 full points from its 52-week high. If the stock’s track record is meaningful, one could argue that it pays to buy PepsiCo when its share price is down.
Another stock with a great long-term track record of wealth creation is United Technologies Corporation (NYSE/UTX). This is another Dow stock that’s proven to be highly resistant to the swings in the business cycle—at least according to its share price. If you pull up a 30-year chart on the stock, you could put a ruler on a diagonal underneath the share price and see the consistency of wealth creation. This is another large-cap stock that, according to its long-term track record, has paid off buying on the dips.
The one sector that stands out as not providing the most consistent of investment returns to shareholders is technology. The trading action is pretty blatant for virtually all of the world’s most well-known technology companies over the last 25 years. There was the great surge in large-cap technology stocks leading up to the year 2000…then there was nothing.
For blue-chip investing, I’d rather own dividend-paying PepsiCo or United Technologies for a very long time rather than try to get the business cycle correct in more volatile industries. Consistency of investment return, along with preservation of capital, is a worthwhile goal in the stock market. I’d rather bet that people would still purchase soda and potato chips, ride elevators, and buy new a furnace or air conditioner over some big new technology from Silicon Valley. The proof is in the long-term track record. While this can’t predict the future, it’s something I think is very meaningful.