The “lost decade” in stocks is the period from 2000-2010, when stocks in general had been mostly flat. The reason for the stalled performance is that stocks had been overvalued during the last leg of the 1999-2000 bull market run.
Over a decade ago, demand for speculative Internet stocks with no earnings or revenues were high, and the good times were expected to continue forever. Now, after two severe stock market declines due to the implosions of the tech and financial sectors, investors are again projecting the past onto the future — this time, doom and gloom.
We believe stock valuations are at their lowest levels in years.
One of the biggest arguments against purchasing quality dividend stocks is that they have been “dead money” over the past decade. At my site, some readers have mentioned that companies such as Intel (NASDAQ:INTC), Medtronic (NYSE:MDT), Coca-Cola (NYSE:KO), Wal-Mart (NYSE:WMT) and Abbott Laboratories (NYSE:ABT) seem to fit that bill since they delivered very little in total returns over the past decade.
Once again, investors are comparing apples to oranges. In general, these four stocks were much overvalued in 2000. Today, though, they are attractively priced.
Let’s look at the numbers:
Intel engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. While the company earned $1.51 per share in 2000, when the stock price ended the year at $30.06 per share, for a P-E of 20, this EPS figure did not take into account the implosion of the tech sector.
One of the reasons I haven’t ventured in to the stock was that Intel did not exceed its 2000 EPS until 2010. In 2001, EPS collapsed to just 19 cents per share. Metrics such as P-E ratios should be taken with a grain of salt when dealing with cyclical companies in technology, including the automotive and materials sectors. The stock has a P-E of 11.70 and yields 3% today. That makes it a buy when it reaches dividend-achiever status. (analysis)
Coca-Cola manufactures, distributes, and markets nonalcoholic beverages worldwide. In 2000 the company earned 88 cents per share, while the stock closed the year at $60.94. The P-E ratio was rich at 69 times earnings, while the annual dividend of 68 cents per share delivered a yield of 1.10%. Today, Coca Cola trades at 19.30 times earnings and yields 2.90%. (analysis)
Medtronic manufactures and sells device-based medical therapies worldwide. In 2000 the company earned 91 cents per share, while the stock closed the year at $60.38. The P-E ratio was rich at 66 times earnings, while the annual dividend of 20 cents per share delivered a yield of 0.30%. Today, Medtronic sells at 12.20 times earnings and yields 2.50% (analysis)
Wal-Mart operates retail stores in various formats worldwide. In 2000 the company earned $1.25 per share, while the stock closed the year at $53.13. The P-E ratio was rich at 42 times earnings, while the annual dividend of 24 cents per share delivered a yield of 0.50%. These days, the world’s largest retailer trades at 13.40 times earnings and yields 2.60% (analysis)
Abbott engages in the discovery, development, manufacture, and sale of health-care products worldwide. In 2000 the company earned $1.78 per share, while the stock closed the year at $48.44. The P/E ratio was rich at 27 times earnings, while the annual dividend of 76 cents per share delivered a yield of 1.60%. Currently, he company trades at 15.10 times earnings and yields 3.40%. (analysis)
The author is long KO, WMT, MDT and ABT.