Quality ASX stocks shine through

Over the long-term, here's proof quality stocks can beat the market

a woman

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Back in January 2012, I wrote an article on 9 of the S&P/ASX 50 (ASX: XFL) (INDEXASX: XFL) stocks that had been heavily sold off – losing at least 12% of the share price, and as much as 41% from their 52-week peaks.

Here's a cut-down version of the table, showing the share price fall and the dividend yields available at the time.

Company Div Yield Fall from peak
QBE Insurance Group Ltd (ASX: QBE) 11.01% 41%
BHP Billiton Limited (ASX: BHP) 2.64% 25%
Computershare Limited (ASX: CPU) 3.62% 25%
Origin Energy Ltd (ASX: ORG) 3.64% 21%
Westpac Banking Corp (ASX: WBC) 7.56% 19%
CSL Limited (ASX: CSL) 2.61% 20%
Australia and New Zealand Banking Group (ASX: ANZ) 6.69% 19%
Worleyparsons Limited (ASX: WOR) 3.12% 18%
Sonic Healthcare Limited (ASX: SHL) 5.19% 14%
Woolworths Limited (ASX: WOW) 4.94% 12%

Source: Google Finance

In the article I suggested that these stocks were oversold purely as pessimism took hold, perhaps offering an opportunity for investors to pick up stocks on the cheap. I also suggested that investors selling out of those stocks weren't doing themselves a favour.

Reflecting on the results, had investors bought an equal amount of shares in all 9 of those companies that day, reinvested their dividends and held their shares through to today, they would've handily beaten the index by 8.4% (both including dividends).

Company Return
QBE Insurance Group Ltd 31.1%
BHP Billiton Limited 1.4%
Computershare Limited 78.2%
Origin Energy Ltd 11.2%
Westpac Banking Corporation 106.7%
CSL Limited 44.7%
Australia and New Zealand Banking Group 88.4%
Worleyparsons Limited -56.0%
Sonic Healthcare Limited 101.8%
Woolworths Limited 38.0%
Average 44.5%
Market (S&P/ASX 200) 36.1%
Outperformance 8.4%

Source: Capital IQ

Now that's not complicated. No need to watch the market, no need to worry whether to sell, which stock to sell, buy more, switch into the 'latest hot stock', – basically tuning out the market noise.

It's also further proof that over the long term, if you buy a portfolio of quality stocks and hang onto them and not trade, the odds of you beating the market soar. Some may underperform the market (thank you Worleyparsons, Origin Energy, BHP Billiton and QBE Insurance), but the rest of the fairly diversified portfolio has performed admirably, resulting in market-beating returns.

Motley Fool contributor Mike King owns shares of CSL Ltd. and Woolworths Limited. You can follow Mike on Twitter @TMFKinga  The Motley Fool Australia owns shares of Computershare. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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