Stocks for the Long Run: St. Jude Medical vs. the S&P 500

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, St. Jude Medical (NYS: STJ) .

St. Jude Medical shares have easily outperformed the S&P 500 over the past quarter-century, with most of the outperformance occurring in the past 15 years:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 18.1% 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 St. Jude Medical, it'd be worth $203,600.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about 10% of St. Jude Medical's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how St. Jude Medical earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Big outperformance here, too. Since 1995, St. Jude Medical earnings per share have increased by an average of 14.1% a year, compared with 6% a year for the broader index.

What's that meant for valuations? St. Jude Medical has traded for an average of 28 times earnings since 1987 -- a bit above 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 St. Jude Medical with a five-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add St. Jude Medical to My Watchlist.

The article Stocks for the Long Run: St. Jude Medical 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 St. Jude Medical. 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.

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