The “Nifty Fifty” were a group of 50 popular large-cap U.S. stocks that were “must own” blue chips in the 1960s and early 70s – but some industry analysts are asking if their track records deserve this consideration.
Of those original 50 companies, some 38 survive to today in one form or another – an example being American Home Products, which acquired and changed its name to Wyeth and has since been merged with Pfizer.
“Yet of those, only 23 were actually successful,” says Alex Rasmussen, an investment analyst with Empire Life Investments, who defines success as returning more than the S&P 500 from the late 1970s to today. “So right off the bat your odds are less than a coin flip.”
Even worse, only 14 have been successful and stayed in their current form with public listings to today.
A group of stocks with which you could do no wrong, the “Nifty Fifty” have traditionally been viewed as growing and paying steadily increasing dividends in practically any environment.
A recent trend among advisors is to “get real” with clients, providing more realistic expectations for how stocks will perform.
“This is really a time when as a portfolio manager you need to be selective,” Bellwether Investment Management CEO Bob Sewell told WP,
“meaning that you need to be investing in companies that are growing their earnings at a rate that justifies a higher valuation. This is an opportunity to demonstrate the benefits of active management.”
It is important because even if you owned Gillette for example, when they merged with Procter and Gamble for stock in 2005, your PG shares have since lagged the S&P 500 over the past 10 years, says Rasmussen.
“You can’t just pick winners,” he says. “They have to stay intact as well. Realistically only three of those companies have been home runs and trounced the market.”
These 14 remaining blue chips trade at a 20 per cent premium to the market today.
And those three companies that hit homeruns? Disney, Altria and WalMart.