Brambles and CSL no match for the index

Many blue chip stocks have enjoyed a solid run over the past 12 months. Blue chip stocks to outperform the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) include Brambles (ASX: BXB), CSL (ASX: CSL) and the major banks. Over the past week however, Brambles and CSL have struggling to keep pace with the index’s 2.2% gain.

There are a few reasons that could explain this week’s underperformance relative to the index. First, quality stocks with leverage to the US dollar have enjoyed a superb rally over the past year. Exposure to the US market has no doubt been a factor in Brambles’ 55% gain and CSL’s 67% gain. This share price growth has pushed their multiples to lofty levels. Given these multiples require decent earnings results and outlooks to justify, the price advances could well be taking a breather.

Secondly, the rally is being led by some recent underperformers, including BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO). The slowing of the resource boom has led most miners to underperform the index over the past 12 months. For example, while the S&P/ASX 200 Index’s return is nearly 23%, BHP is up just 10.4%, while Rio is up only 1.8%.

These two factors, amongst others, are likely to have contributed to BHP and Rio’s outperformance of the index this week and Brambles and CSL’s underperformance.


As Motley Fool contributor Claude Walker wrote here, the aim for investors should be to identify companies that will grow for the next 10 years; it doesn’t matter what their performance is like over five days! Claude is of course absolutely right and as the chart below shows, when investors step back to take a longer term view of performance, the short term gyrations pale in to insignificance. Over the past year Brambles and CSL have absolutely blitzed the market and likewise over the past five years their returns both compared to the index and to the major miners have been significantly better.


Source: Google Finance

Foolish takeaway

The returns mentioned above are before the inclusion of dividends which are an important contributor to the total return for investors. The noise of day-to-day stock moves is ever present, but investors who can ignore the noise are likely to stand the best chance of identifying superior investment opportunities.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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