A long-term plan is essential -- whether you are preparing for war, your career, or your financial future.
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Financial experts suggest that in order to successfully invest for the long term, you need to focus on quality stocks that are stable and predictable, because what works today may not work years or decades from now.
Brian Macauley, co-portfolio manager of the Hennessy Focus Fund, says that investors should “stick with vanilla, predictable businesses…essential product services that will be needed years from now.”
Ponying up and paying for high-quality stocks as long-term investments is a sound strategy, according to Sam Stovall, U.S. equity strategist at S&P Capital IQ. At S&P, they define quality by how consistently the company has raised earnings and increased dividends in each of the last 10 years.
The best stocks for the long run, according to Stovall, are ones that provide a dividend, have low volatility, and consistently beat earnings estimates. Here are six expert picks.
Coca Cola, General Mills, Costco
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Investopedia defines consumer staples as, “goods that people are unable or unwilling to cut out of their budgets regardless of their financial situation.” According to this logic, food, beverage and tobacco stocks are relatively steady, safe options for the long term-- regardless of how the economy performs-- because, as Stovall puts it, “when the going gets tough, the tough go eating, smoking and drinking.”
Finding consumer staples that also happen to pay a dividend can offer additional value. You get steady growth at low volatility, while also receiving dividends that you can use to reinvest in the company for more stock, or acquire new positions.
KO - Coca Cola (KO) is a blue chip dividend growth stock that makes products sold globally. It’s also a great example of the power and value of a recurring dividend and reinvesting. They have been paying a dividend since 1920 and have increased it every year for the past 50.
GIS - General Mills (GIS) currently has a dividend of 3.3%, and has been paying one for 114 years. Matthew Jehn, certified financial planner and managing partner at Royal Oak Financial, describes it as “super ultra-safe,” and “something for the long term that you are not going to want to jump in and out of that you know you can hold.”
COST – Costco (COST) is a membership warehouse club that has become the second largest retailer in the U.S. The stock has doubled since 2009, and its S&P Quality Ranking is an A, which equates to a “Buy.” Even in the worst of times, consumers need to buy food and basic necessities. A one-stop shop that offers it all and believes in keeping prices low may be a safe bet to thrive over the long term, especially since they offer electronics, designer clothes and organic foods -- in addition to the basics.
“The best performing sector over the last 25 years has been technology,” says Stovall, “however, its volatility has been so great that some would regard it as an EKG diagram.”
Jehn suggests that, “when you get to technology you have to throw a little caution to the wind in terms of what is really going to be around 10, 15, 20 years from now. Obviously Apple (AAPL) is creating a pretty powerful product. They’re relevant and should be around for a long time.”
American Tower (AMT) owns cell phone towers around the world and is the largest operator in the U.S. They lease tower space to mobile service providers like Verizon, AT&T, and Sprint.
It’s very hard to get zoning to build new towers because no one wants them in their neighborhood, restricting supply. It has a fixed cost structure; they pay to build the tower once and then generate profits for years with a current average of three “tenants” on each one in the U.S. And with the enormous demand for data in this smartphone age, there is a monumental increase in data usage and the need for capacity on AMTs towers.
“According to Cisco and a study they’ve done, over the next 5 years, data demand on mobile devices is going to be up ten-fold from where it is today,” says Macauley, making it a safe bet that AMT will not only be around 5+ years from now, but thriving, since they also have a lot of cash flow available to make acquisitions, do buybacks, or use for dividends.
AON (AON) is an insurance broker, another acyclical industry that typically doesn’t suffer much during a recession. They also offer HR consulting services.
“What is unique about AON is that they are 1 of only 3 companies that have a global reach, and can serve global Fortune 1000 Companies effectively in the insurance brokerage space,” says Macauley.
It’s a slower-growth business, but they buy back a lot of their own stock and pay a modest dividend. Macauley says that you can expect 10-15% earnings growth over the next 5 years.