I’ve been taking a look at mature companies and it seems that these companies really suck when it comes to long term investing. Just look at Walmart, GE, and MSFT. Msft has stayed in the 20-32 dollar range for about 10 years. If you had held it, you would’ve gotten shit. The dividend yield isn’t that great.
XOM has been a mature company for a while, so has KO, MCD… check out their performance. you took 3 examples out of a large population and try to apply to all mature companies?
I think in the long run it evens out, some mature companies have created value, some have destroyed. I wouldn’t invest based purely upon this. Look at the company/industry fundamentals and where you see the economy moving, not at growing vs mature.
You are cherry picking a very specific time period that included huge multiple compression. MSFT trades at $28 or about 15x earnings, while in 1998 it traded at $22 or about 49x earnings. This analysis also ignores the $3 per share dividend they paid in 2004. Just because stocks were wildly overpriced in 1998 doesn’t mean they aren’t good investments today, unless you believe that multiple is going to zero.
Or you believe that the E part of the P/E is likely to come under pressure, due to corporate profits being at a record proportion of GDP.
MCD is a different story. They had some problems in the company a few years ago. The stock went to the early teens. Then they got new management and initiated a turnaround and the stock has quintipled. http://www.marketwatch.com/tools/quotes/intchart.asp?symb=MCD&time=12&freq=1&comp=&compidx=aaaaa~0&compind=&uf=0&ma=&maval=&lf=1&lf2=&lf3=&type=2&size=1&txtstyle=&style=&submitted=true&intflavor=basic&origurl=%2Ftools%2Fquotes%2Fintchart.asp
Look at the chart for KO for ten years, you would’ve lost money. http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ko&sid=0&o_symb=ko&freq=2&time=13 The ten year price chart for Mcdonalds isn’t that great either. http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=mcd&sid=0&o_symb=mcd&freq=2&time=13 Okay, Exxon isn’t that bad. But for the first five years, it stayed flat. http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=XOM&sid=0&o_symb=XOM&freq=2&time=13&x=29&y=17
GE http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ge&sid=0&o_symb=ge&freq=2&time=13
JPMorgan http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=jpm&sid=0&o_symb=jpm&freq=2&time=13
Look, I’m no CFA charterholder yet, but I’m pretty sure you can’t just look at price. Taking KO, for example, you see a pretty steady increase on the size of the dividend coupled with, from a preliminary analysis, a steadily growing company. To an investor who is risk averse, this is probably a good investment. They are essentially guaranteeing cash inflows for a certain period of time while mitigating as much risk as possible (i.e. Coca Cola isn’t going to die anytime soon). But yeh, like everyone else was saying, comparing 2008 to 1998 is probably not a good idea. All the gains made by people in the run up to the recession evaporated by the time it was over. On the other hand, someone who invested in KO in 1993 would have tripled their investment by now (while receiving all dividends during that time period).
For me, the bigger reason not to invest in large mature companies is how can I possibly gain an edge? Am I really going to outguess the countless institutions and several dozen analysts on stocks like that? What could I possibly uncover about a large cap stock that isn’t already baked into the price? Better off indexing the large caps imho.
XSellSide Wrote: ------------------------------------------------------- > For me, the bigger reason not to invest in large > mature companies is how can I possibly gain an > edge? Am I really going to outguess the countless > institutions and several dozen analysts on stocks > like that? What could I possibly uncover about a > large cap stock that isn’t already baked into the > price? Better off indexing the large caps imho. But in time, conditions change. What may seem like a mature company may eventually get bigger or pay more dividends. The company I work for is pretty conservative and we service very wealthy clients who want a better return than T-bills, but don’t want to gain the risk of a company that might, in the long term, fail. And, of course, maybe you know something they don’t 
You are missing the point CFAdummy. The stocks haven’t gone anywhere in 10 years because stocks were vastly overvalued in the late 90’s. Pull up a 20-year chart and you will see a different picture. It think it’s safe to say most of the companies you picked (save for MSFT) were “mature” in 1988. I think you’ll find they performed very well when viewed in that light.
What’s not to say that they will be vastly overvalued for the next 10 years? I mean if I situation like MCD happens again, I could see a screaming buy. I remembered when it happened, everybody was saying bad things about MCD. Still if you bought these stocks in the late 1990s and held them for ten years you would’ve almost come even in terms of stock appreciation, excluding the dividends. GE could be considered undervalued due to its 10 year trading range. If it falls to 25 it will be at the bottom of the ten year range. Was Coke, MCD, C, JPM a maturing company in 1970-1980s? I think these companies expanded market share in foreign markets. Look at the price of these stocks from 1970-mid 1980s. They were stuck in a price range. It looks like they all have a similar pattern. http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ko&sid=0&o_symb=ko&freq=2&time=20 http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=mcd&sid=0&o_symb=mcd&freq=2&time=20 http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=c&sid=0&o_symb=c&freq=2&time=20&x=62&y=13 http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=jpm&sid=0&o_symb=jpm&freq=2&time=20 http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ge&sid=0&o_symb=ge&freq=2&time=20
I mean if I situation like MCD happens again, I could see a screaming buy. MCD (Feb 2003) = SBUX (Apr 2008)
SBUX=a slowed version of CROX. Covered calls solve your problem with large cap mature companies “underperforming”. Give me a stock that trades in a ±10% range over 10 years, and I give you 12-20% pretax returns guaranteed.
SBUX can go to 10 before it goes up. We’re in a recession now, you think people are going to pay 4 bucks for a coffee when they can’t afford gas or regular eating expenses? However, it would be a good contrarian bet, buy when people think the company is going to shit.
Buffet has an article in his office about Coca Cola. The article states that Coke is a mature company and will not see much growth, and shouldn’t be purchased as an investment. The article was written sometime in the 1930’s. A mature company with a distinct competitive advantage can still be a strong investment.
For yield. Willy