Warren Buffett. Image source: The Motley Fool.
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Chances are, you've heard the famous Warren Buffett quote (there are quite a few) that the Oracle of Omaha's "favorite holding period is forever." That's a lot easier said than done since industries and markets change dynamically and companies must adapt to keep up. On top of that, not a lot of investors have the psychological fortitude to hang on that long.
That being said, we Fools do tend to have long time horizons for investing. Here are a handful of stocks that we don't intend to sell.
Tim Green: When it comes to technology companies, a lot can change in just a few years, and committing to never selling a stock given this uncertainty may not be the best idea. However, networking giant Cisco Systems is a stock that I don't plan on selling anytime soon.
Cisco has a dominant share of the market for network switches and routers, but this core business is facing a few major long-term threats. Software-defined networking, where cheap, commodity hardware is paired with software, could potentially eat away at Cisco's lush gross margins in the coming years. And the rapid growth of cloud computing has created plenty of uncertainty regarding what future networking architectures will even look like.
But so far, Cisco has managed through these challenges well, maintaining its stranglehold on the networking hardware market while shifting more heavily toward software and services. The company's take on software-defined networking, ACI, now has an annual run rate of $2 billion, and according to its projections, software and services could account for more than half of total revenue by 2020.
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Cisco has done what is difficult for large, entrenched technology companies to do when faced with disruption -- it has adapted. There's no guarantee that Cisco's strategy will be a success in the long run, which is why I won't commit to never selling the stock, but at the moment, I'm confident that it is a solid long-term investment.
: One stock in my portfolio that I plan to hold on to indefinitely is global payment processorMasterCard , as I think this company has one of the best business models out there and it has positioned itself for decades of strong growth.
MasterCard plays a vital role in linking customers, merchants, and financial institutions as it helps facilitate digital payment transactions between them. Whenever a consumer swipes a card with the MasterCard logo on it, the transactions takes place on MasterCard's vast network. In exchange for ensuring a smooth transaction for all parties involved, MasterCard collects a small fee. With billions of transactions happening every year on its network, those small fees add up quickly, which is why the company is able to produce billions in revenue and profits each year.
Now here's the real reason I plan on never selling any of my MasterCard shares: Despite the fact that debit and credit cards have been available for decades, electronic payments still only make up less than 20% of worldwide transactions. Since using plastic is far more convenient than paying with cash or check, it's likely that more consumers will make the switch each year. That should give MasterCard's business an incredible long-term tailwind that will keep its top and bottom lines heading in the right direction.
The company's recent results confirm that this shift is still taking place. In the fourth quarter, MasterCard reported a 7% jump in the number of its branded cards worldwide -- there are now 2.3 billion cards out there -- and a 12% jump in gross dollar volume. While revenue growth was held back by foreign exchange movements, that issue will work itself out over time and, in a few years, could prove to be a tailwind.
With a terrific business model and a strong trend at its back, MasterCard is one stock that I plan on holding forever.
Jason Hall: What company best represents the kind of enduring business that I could realistically own forever? I'll double up with Brian and go with MasterCard. In addition to the things he mentioned, I'll offer up a few more reasons why I think MasterCard is a "hold forever" stock.
As Brian wrote, electronic payments are still a tiny fraction of global transactions that are set to grow for years to come. With the global middle class on pace to be 1 billion people bigger by 2035 -- and the majority of that expansion to be in developing economies, not the West -- that's alotof opportunity to capture a larger share of payments. Mobile payments will be a big part of this, with MasterCard, Visa, and AmEx still working in the background to actually do the money processing part.
Furthermore, I think Visa's size could limit its ability to grow market share, while MasterCard's position as No. 2 could make it easier for this smaller company to grow. American Express is also a lender, so credit risk could be a limiting factor, while MasterCard is a pure-play payment processor.
Lastly, don't let the 0.8% dividend yield mislead you. MasterCard will be a dividend dynamo for long-term investors. The company paid its first dividend in 2006, and has increased payouts by 2,000% since then. If you'd bought shares the day the first dividend was declared, you'd be getting an 8.5% yield on your MasterCard shares today. Currently, it only pays out about 20% of earnings in dividends, giving the company plenty of room to keep increasing payouts while also investing in growth.
Put it all together and MasterCard is an ideal stock to hang on to forever.
Tyler Crowe:The world changes, and because of that, it is almost impossible to say that there is a stock that will never be sold. However, one thing that I look for in an investment that would qualify as a never-sell stock is in an industry that has a rather low chance of being disrupted. And a company that fits that bill is Waste Management .
Humans produce waste -- it's just something we do. And as long as we do that, we will have need for someone to handle it. This gives Waste Management an installed customer base that has very little chance of declining. To make the situation even better, opening new landfills is very challenging because of political hurdles. So the company doesn't need to deal with competitors encroaching on its territory.
These two things alone make the waste business a rather lucrative one, but Waste Management takes it a step further as it is consistently looking for new and innovative ways to cut costs. A great example of this is the company's decision to convert its waste collection vehicle fleet to run on natural gas. Not only is natural gas less expensive than oil -- even at today's prices -- but Waste Management can also use methane collected from its landfills.
The combination of huge competitive advantages and a return-focused business translates to a company in an unheralded industry that generates a return on capital of 13%. Throw in a dividend yield of 3% and a management team that consistently retires shares through buybacks, and that is a recipe for a stock I don't plan on selling unless something drastic happens.
: I was a little bit late to the Netflix party -- by about a decade. While Motley Fool Stock Advisor's first recommendation dates back to the DVD-by-mail days in 2004, I finally bit the streaming bullet in 2014 during one of the pullbacks that occurred that year. High-multiple growth stocks tend to do that, and in some cases, that volatility can present compelling entry points, so I took advantage of the buying opportunity to get in at a split-adjusted cost of around $49.
Even though I missed out on plenty of gains in the prior years, I still think the company has a long runway of growth ahead of it, particularly on the international front. Netflix has made incredible progress with growing its portfolio of original content, which is incredibly efficient in terms of content expenses while simultaneously providing differentiation and brand strength. Netflix has become such an ingrained content service that everyone just assumes you have it, at least in the U.S.
And since Netflix has always operated over the top and sold its service directly to consumers, removing all the layers of middlemen associated with traditional premium cable channels, it cuts costs and delivers incredible value to consumers. Excluding the bizarre Qwikster debacle from a few years back, Netflix also wields meaningful pricing power and most people aren't overly worried about an extra $1 per month. I don't think I'll ever sell Netflix. At least not until cable is dead, which isn't happening anytime soon.
The article 4 Stocks We Plan Never to Sell originally appeared on Fool.com.
Brian Feroldi owns shares of MasterCard, Netflix, and Visa. Evan Niu, CFA owns shares of Netflix. Jason Hall owns shares of American Express, Cisco Systems, MasterCard, Netflix, and Waste Management. Timothy Green owns shares of Cisco Systems. Tyler Crowe owns shares of Visa and Waste Management. The Motley Fool owns shares of and recommends MasterCard, Netflix, and Visa. The Motley Fool owns shares of Waste Management. The Motley Fool recommends American Express and Cisco Systems. Try any of our Foolish newsletter services free for 30 days. 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.
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