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Sunday, October 15, 2023

Hooray for Boring Stocks! Here’s Why You Shouldn’t Ignore These Hidden-Gem Investments

One thing that many stock investors know that many non-investors don’t is this: Investing can be fun! It’s exciting when you can park long-term dollars in great companies and watch them grow in value over time. It’s fun when, on some days, your portfolio jumps in value significantly.

Investors and non-investors alike, though, often fail to appreciate how powerful and exciting boring companies can be.

Image source: Getty Images.

Exciting growth stocks

What’s boring, and what’s exciting? Well, it certainly varies to some degree from one person to the next. But many are excited by high-technology companies ushering in new ways of doing things; biotechnology companies offering treatments for diseases; and companies pursuing the next big thing, whether that’s “fintech,” cloud computing, artificial intelligence (AI), or something else.

Examples of exciting companies would include growth stocks ↗ such as Apple, Amazon.com, Nvidia, and Tesla. They typically have strong records of stock-price appreciation, making shareholders happy and non-shareholders jealous:

Company

Primary Business

Average Annual Return, Past 10 Years

Nvidia

Semiconductors

62%

Tesla

Electric vehicles, batteries

35.9%

Apple

Smart devices

27.9%

Amazon.com

E-commerce, cloud computing

23.6%

Netflix

Streaming entertainment

23.4%

Micron Technology

Memory chips

14.3%

Qualcomm

Semiconductors

8.4%

PayPal

Digital payments

5.6%

Uber Technologies

Ride-sharing

2.6%*

Zoom Video Communications

Video conferencing

1.8%*

*Average annual return since going public, less than 10 years ago.

Data source: TheOnlineInvestor.com.

Exciting growth stocks are not all rainbows and sunshine, though. As they often surge in value significantly, many can end up overvalued ↗ by the time you decide to invest in them. That leaves you with no margin of safety ↗. And it’s more likely that a given stock will retreat back to a more reasonable valuation in the short term than that it will continue to grow.

The table above shows both some amazing performers, and some stocks that have disappointed shareholders over the past decade.

Exciting boring stocks

So consider focusing on boring stocks as much as, or even more than, on growth stocks. Aim to buy into them when they seem undervalued ↗ — and be prepared for some of them to knock your socks off with solid performances.

Check out the table below, featuring plenty of companies in not-so-exciting industries that nevertheless have been exciting performers — and note that over the same period, the S&P 500 index averaged annual gains of 12%. (All figures include the reinvestment of any dividends.)

Company

Primary Business

Average Annual Return, Past 10 Years

Old Dominion Freight Line

Trucking

30.1%

UnitedHealth Group

Health insurance

23.8%

O’Reilly Automotive

Auto supplies

21.9%

Pool Corporation

Pool supplies

21.9%

NVR

Homebuilding

20.8%

AutoZone

Auto supplies

19.9%

Monster Beverage

Beverages

19.3%

Valero Energy

Energy

18.9%

LVMH Moët Hennessy Louis Vuitton

Luxury goods

17.6%

Sherwin-Williams

Paint

16.5%

Nucor

Steel

15.4%

Paychex

Payroll, business services

15%

Walmart

Retail

10.5%

PepsiCo

Snacks and beverages

10.7%

Data source: TheOnlineInvestor.com.

See? There are some solid performers there — led by a specialist in transportation, not semiconductors. Many of these companies have been making shareholders much richer over decades, often while paying dividends — and they’ve increased those dividends over time, too, contributing to solid yields. Valero Energy, for example, recently yielded 3.1%, while PepsiCo yielded 2.9% and Paychex yielded 2.8%.

The table above isn’t meant to suggest that every seemingly boring company will be a great addition to your portfolio. Some boring companies will deliver boring (or worse) performances. Instead, the table should make clear that lots of seemingly boring companies are worth a closer look — because plenty of them have the potential to grow just as robustly as their more exciting counterparts.

With any company you’re thinking of adding to your holdings, be sure to dig into it in detail; you should feel confident in its quality as a business, its growth prospects, its financial health, its competitive advantages, and the attractiveness of its valuation. Companies that fit the bill may be exciting or boring.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Selena Maranjian ↗ has positions in Amazon.com, Apple, Micron Technology, Netflix, and PayPal.

The Motley Fool has positions in and recommends Amazon.com, Apple, Monster Beverage, NVR, Netflix, Nvidia, Old Dominion Freight Line, PayPal, Qualcomm, Tesla, Uber Technologies, Walmart, and Zoom Video Communications. The Motley Fool recommends Sherwin-Williams and UnitedHealth Group and recommends the following options: short December 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy ↗.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

James Mackreides
James Mackreides
'Mac' is a short tempered former helicopter pilot , now a writer based in Sofia, Bulgaria. Loves dogs, the outdoors and staying far away from the ocean.

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