One company has returned almost 29,000% since 1975, while the other two have quintupled the S&P 500’s gains over the past 20 years.
This has been a year that no one will soon forget — especially Wall Street.
In a four-month span, the stock market experienced about a decade’s worth of volatility. Panic surrounding the coronavirus disease 2019 (COVID-19) pandemic slashed 34% off of the value of the widely followed S&P 500 (NYSEARCA:VOO) in less than five weeks. Then, in the 11 weeks that followed, the benchmark index gained most of what it lost back, while the technology-focused Nasdaq Composite (NASDAQ:QQQ) has pushed to one new all-time high after another.
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In many respects, the usual suspects are responsible for this rebound — the FAANG stocks of Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), and Google (NASDAQ:GOOG), as well as cloud-computing companies, artificial intelligence stocks, cutting-edge biotech companies, and really anything having to do with leading-edge or asset-light innovation. But what you might not realize is that some of the market’s greatest stocks are company’s you’ve never heard of before.
Here are three such names.
White Mountains Insurance Group
Most investors are familiar with investing great Warren Buffett and have likely heard of his company, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B). They may even be familiar with Markel (NYSE:MKL), which is often described as a “mini-Berkshire.” But there’s a very good chance you’ve never heard about White Mountains Insurance Group (NYSE:WTM), which really is a bit of an under-the-radar mini-Berkshire Hathaway.
Following the sale of OneBeacon in 2017, White Mountains Insurance has focused its attention on its big five investments. These include HG Global and BAM, which provide municipal bond insurance and reinsurance, Kudu, which offers advisory services and capital solutions to asset management and wealth management companies, and MediaAlpha, a marketing technology company, to name three of the five. Like Buffett, White Mountains is generally focused on low-risk, fee-based businesses that provide predictable cash flow and are often tied to the health of the U.S. economy (which spends far more time expanding than contracting).
Beyond just acquiring controlling or significant stakes in five diverse businesses, White Mountains also invests in fixed-income assets and equities (typically passive exchange-traded funds). Though it doesn’t have the $210 billion-plus investment portfolio that Warren Buffett’s Berkshire Hathaway sports, White Mountains did have almost $1.2 billion in fixed-income assets at the end of March, including $486 million in corporate bonds, and another $1.15 billion in equities and other long-term investments. Considering that the stock market is known to return 7% over the long-run, inclusive of dividend reinvestment, White Mountains’ investment strategy should yield mid-single-digit portfolio growth.
Also, like Berkshire Hathaway, White Mountains Insurance Group regularly repurchases its own common stock. Over the past five years, White Mountains’ share count has nearly been halved from approximately 6 million shares outstanding to just 3.11 million. Buybacks tend to have a positive impact on book value and earnings per share, which has likely played a big role in the company’s 11-year winning streak (based on total return, including dividends) and 645% return since the century began.
When I say “water utility,” your initial reaction might be to yawn loudly, or perhaps even scroll to the next great unheard of stock. But pass up Pennsylvania-focused York Water (NASDAQ:YORW) at your own risk, as it’s delivered a 667% return since the beginning of 2000, which has more than quintupled the return of the benchmark S&P 500 over the same time frame.
If you want a true “wow” statistic, how about this: No publicly traded company has been paying a longer consecutive dividend than York Water. York began paying a regular dividend to its shareholders back when James Madison was president of the United States. No joke — York has paid dividends for 204 consecutive years. The next-closest company is Stanley Black & Decker (NYSE:SWK) which has been paying a dividend for 143 straight years. That’s a better than six-decade gap between York Water and the No. 2 consecutive dividend-paying company.
Admittedly, providing water and wastewater services isn’t exactly an exciting business. However, it provides plenty of predictable demand and cash flow, which has allowed York to continue paying a dividend for more than two centuries, as well as plot out acquisitions with excellent visibility. It also doesn’t hurt that most utility stocks operate as monopolies or oligopolies in the municipalities they service.
Furthermore, the company’s water and wastewater services are regulated operations. Though this means York Water isn’t able to pass along price hikes at its choosing, it also means that it’s not exposed to any wholesale pricing, which can be potentially volatile. When it comes to cash flow predictability, it’s really hard to beat York Water.
Other than being a state capital, Dover (NYSE:DOV) is highly unlikely to ring a bell with most investors. However, since the beginning 1975, Dover’ stock has returned a whopping 28,800% to its shareholders, and the company is riding the second-longest dividend increase streak among all Dividend Aristocrats at 64 years. For those of you keeping score at home, Dover’s annualized rate of return is close to 13.3% over the past 45 years, which is almost double that of the historic return of the stock market.
What makes Dover such a great company is that it seemingly has its hands in everything. It generates revenue from fueling solutions, refrigeration and food equipment, imaging and digital printing, engineered component and software solutions, and so much more. There are a bevy of brands that Dover’s products are sold under, and there’s a pretty good chance you’re seeing or interacting with these products on a regular basis. This product diversity helps to tie Dover’s financial success to that of the U.S. and global economy. While that does mean it’s not been impervious to COVID-19, it also suggests that Dover can take advantage of long periods of economic expansion.
Another big part of the Dover growth strategy is acquisitions. The danger of bringing in too many moving parts is that they can fail to mesh. This hasn’t been a problem for Dover, which has dozens of independently operating companies under its umbrella. Dover has a history of buying up businesses that are top-performers in their specific industries, and then sitting back and allowing that same success to continue under the Dover umbrella. You could say that Dover is also somewhat Berkshire Hathaway-like in this respect, having completed 44 acquisitions just since 2010.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Markel and recommends the following options: short January 2021 $200 puts on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.