It’s likely been a frustrating year for many investors. Many tech stocks have been hammered, by megacaps like meta platforms (META -1.57%) and Amazon.com to work from home growth stock darlings like Zoom video communication and Peloton Interactive. Very few industries have escaped the blow of the market retail trade, real estate and finance, which are also taking hits this year. Stock picking hasn’t been easy lately, to say the least.
But there are lessons to be learned from two stocks that are clearly beating the market this year — and both stocks are in very different industries. These two stocks are nothing but the boring and decades-old waste management (WM 0.64%) and MC Donalds (MCD 0.31%). While S&P500 The index is down about 17% year-to-date, Waste Management stock is down just 5%, and McDonald’s stock is up 2% as of this writing. The two stocks are outperformers over both a five-year and 10-year time horizon. While there are many reasons the market for these two companies’ shares has been bullish, they both have one thing in common: their businesses are unlikely to be derailed or disrupted by a weak macroeconomic environment or new competition.
Predictable companies deserve high ratings
If 2022 has taught us anything, it’s that the market’s appetite for a stock can quickly wane when a company’s future becomes more uncertain. Consider the sharp decline this year in Meta Platforms, the parent company of Facebook, Instagram and WhatsApp. Shares are likely to be down as year-to-date earnings per share are down nearly 33% from the year-ago period. Meta is struggling with a combination of reduced ad budgets amid macroeconomic uncertainty and the impact of changes to ad tracking and ad measurement Applethe mobile operating system of . Such a sharp drop in earnings is causing investors to reevaluate the company’s long-term earnings growth potential and the likelihood of various scenarios materializing.
On this point of predictability, McDonald’s and Waste Management excel. Not only does it stand to reason that the world’s largest fast-food burger chain and the country’s largest garbage disposal service will likely still be serving customers 10, 20, or even 30 years from now, but the two companies also have a long history of steady growth to back their long to show breath. McDonald’s was founded in 1955 and Waste Management was founded in 1968. Compare that to Meta Platforms’ short history of less than 20 years. What’s more, Meta didn’t even go public until 2012; That means the company didn’t have to survive the dot-com bubble and wasn’t even publicly traded during the Great Recession.
All of which is to say that the sudden disruption in revenue and profits for some tech darlings in 2022 is a stark reminder that proving to investors that they can grow steadily for years to come is of the utmost importance for companies they want their shares to have high market valuations. Waste Management and McDonald’s have been doing this for decades, and they did so during the COVID-19 shutdowns of 2020 and 2021 and in today’s inflationary environment. Even in the third quarter of 2022, McDonald’s and Waste Management’s sales exceeded analysts’ expectations.
The strength of both companies, even in tough times, is also evident in their long histories of consistent dividend growth. McDonald’s has increased its dividend for 45 straight years, with the most recent 10% increase being announced last month. Waste Management’s most recent dividend increase came last December, when it increased its dividend by 13%. This marks the 19th consecutive year of dividend increases for the company.
While rising dividends, even during tough times, aren’t enough reason for a stock’s premium valuation, they do suggest that a company is probably doing something right. In the case of McDonald’s and Waste Management, their long-term dividend growth reflects resilient companies that are growing steadily in all environments. The consistent growth of these two companies and the market’s appreciation of their hard-to-disrupt businesses are likely some of the key factors behind the two stocks’ significant outperformance in 2022.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Daniel Funken has no position in any of the stocks mentioned. Its customers may own stocks of the named companies. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, Inc., Peloton Interactive, and Zoom Video Communications. The Motley Fool recommends Waste Management and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has one confidentiality policy.