What Is a Stalwart?

Stalwart is an investing term popularized by legendary stock picker Peter Lynch to describe a large, well-established company that still offers 澳洲幸运5开奖号码历史查询:long-term growth potential. Lynch used several criteria to identify stalwarts that he would include in his portfolio alongside companies he designated as slow growers, fast growers, cyclicals, and 澳洲幸运5开奖号码历史查询:turnarounds. In stalwarts, he looked for a strong 澳洲幸运5开奖号码历史查询:balance sheet, little or no debt, solid 澳洲幸运5开奖号码历史查询:cash flow, growing dividends, and earnings growth of about 10% ๊to 12% per year.

Understanding Stalwarts

According to the Miriam Webster dictionary, the word "stalwart" is defined as "marked by outstanding strength and vigor of body, mind, or spirit." Stalwarts thus tend to be large, 澳洲幸运5开奖号码历史查询:blue-chip compaꦫnies that still have some "vigor" in terms of upside app🌳reciation potential.

Stalwarts are the type of investments that are not expected to generate high year-over-year (YOY) returns. Rather, they should generate steady, predictable returns that can amount to a gain of 50% over a period of four or five years. Essentially, these types of stock match or slightly improve upon the long-term performance of the S&P 500 index of 澳洲幸运5开奖号码历史查询:roughly 10% per year.

In his book, “One Up on 澳洲幸运5开奖号码历史查询:Wall Street,” Peter Lynch discussed his approach to stock selection, which begins with looking at companies that have a story behind them. It is the basis of his “buy what you know” mantra that forms the foundation of his stock selection. For Lynch, the story begins with the type of company and where it fits in the context of a diversified portfolio. Lynch created six categories for pl🐈acing stocks he was considering: s🌊low growers, stalwarts, fast growers, cyclicals, turnarounds, and asset opportunities.

Finding Stalwart Companies

Stalwarts are former fast-growers that have matured into large companies with slower, but more reliable, growth. Stalwart companies produce goods that are necessary and always in demand, which ensures a strong, steady cash flow. Although 🐽they are not expected to be top market performers, if purchased at a good price, stalwarts offer an upside of around 50% over several yea🅷rs.

Because of their strong cash flow, stalwarts gen🎀erally pay a dividend. Some examples of current or former stalwarts include Coca-Cola (KO), Colgate-Palmolive (CL), and Procter & Gamble (PG). Lynch would hold his stalwarts for many years to realize their appreciation potenꩲtial.

In addition to a strong balance sheet, one of Lynch’s key measures for a stalwart company is the 澳洲幸运5开奖号码历史查询:P/E to growth ratio (PEG), which is calcul꧃ated by dividing the company’s price-to-earnings (PE) ratio by its earnings growth rate⭕.

Lynch determined that PEGs below 1.0 were an indication of an underpriced stock relative to its growth rate. He considered stocks with PEGs below 0.5 to be a real bargain. For dividend-paying companies, he factored in the 澳洲幸运5开奖号码历史查询:dividend yield to arrive at a yield-adjusted PEG ratio.

Wal-Mart is often cited as an example of Lynch’s stalwart methodology. A decade after its 澳洲幸运5开奖号码历史查询:initial public offering (IPO), Wal-Mart’s PE was still above 20, which was considered high. However, 🧔Lynch determined the company was still growing at a rate of 25% to 30% with plenty of room for ex🔯pansion. Wal-Mart continued that rate of growth for the next two decades.

Real-World Example of a Stalwart Stock

On March 17, 2020, Intel Corp.(INTC) stock was trading near $48.50. T♛hi𓂃s followed a decline from near $68 during the 2020 market sell-off.

With earnings of $4.79, the 澳洲幸运5开奖号码历史查询:P/E ratio of the stock stood near 10.0 (i.e. 48.50/4.79). Earnings per share (EPS) had increased to 15.52%, average, over the prior five years, and were expected to contin𒉰ue to grow near 9% for the next five years to come.

This produced a forward PEG ratio for the stock of nearly 1.0 (i.e., 10/9). At the time, Intel stock had a historical PEG of 0.67 (10/15). The company s𓄧teadily increased dividends per share from $0.42 in 2009 to $1.24 in 2019, yielding 2.5% with a share price of $♛48.50.