Stocks for the Long Run: McGrath Rentcorp vs. the S&P 500

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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, McGrath Rentcorp (NAS: MGRC) .


McGrath Rentcorp shares have crushed the S&P 500 over the past quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 14.5% a year, compared with 9.7% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1987 would be worth $19,200 today. In McGrath Rentcorp, it'd be worth $75,800.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about half of McGrath Rentcorp's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how McGrath Rentcorp earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Big outperformance here, too. Since 1995, McGrath Rentcorp's earnings per share have increasedby an average of 10% a year, compared with 6% a year for the broader index.

What's that meant for valuations? McGrath Rentcorp has traded for an average of 14 times earnings since 1987 -- below the 24 times earnings for 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 McGrath Rentcorp with a five-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add McGrath Rentcorp to My Watchlist

The article Stocks for the Long Run: McGrath Rentcorp vs. the S&P 500 originally appeared on Fool.com.

Fool contributor Morgan Housel has no positions in the stocks mentioned above. The Motley Fool owns shares of McGrath RentCorp. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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