3 Top Stocks to Buy for Your Grandchildren's Benefit

By Markets Fool.com

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Buying stocks for your grandchildren can be a great way to ensure their financial future. However, it's not always easy picking stocks that are worthy of holding for exceedingly long periods of time. To help with this endeavor, our Foolish contributors offer up three stock picks below that appear to have the elements necessary to generate substantial returns over the long haul. Read on to find out which stocks they recommend, and why.

This "boring" brand should provide exciting long-term returns

Jamal Carnette:I'm going to go against conventional wisdom by selecting Procter & Gamble (NYSE: PG). Most financial professionals recommend higher-risk, high-expected-return investments due to the long-term holding period, or advise buying a stock your grandchild knows and loves. Needless to say, Procter & Gamble likely doesn't fit either of these criteria.

The most foreseeable risk for multigenerational investments is company-specific: the company going out of business due to lack of demand for its products. It's a safe assumption this will not occur with Procter & Gamble's Pampers, Bounty, Crest, Gillette, Head and Shoulders, and Tide brands. The current hot technology stock or clothing brand may not be relevant for long, but it's a safe bet that in 50 yearsconsumers will still need to clean up spills, brush their teeth, shave, shower, and wash their clothes.

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Don't confuse boring products with boring returns: P&G stock has been on fire over the last year with a 26% one-year total return versus the S&P 500's increase of 10%. Over the last 15 years, P&G has averaged a return of 8% per year versus the S&P's gain of 7%. A large part of P&G's gains comes from the company's dividend, which currently yields 3%. Over the last 50 years, Procter & Gamble has grown that dividend at a rate of 9% per year. Putting Procter & Gamble stock in a dividend-reinvestment plan makes sense for long-term investors.

Finally, there's a persistent belief among financial professionals that investments must excite young people in order to encourage them to invest. I think there's a possibility this approach might be teaching the youth wrong investing lessons. You should invest in a company because it has a favorable risk-return profile, not because you're currently enamored with a company's product. The consumer goods giant may not be exciting, but it's likely your grandchildren will use P&G products for the rest of their lives, so why not invest in the company?

A smart, futuristic company for your grandchildren

Neha Chamaria:When you're considering stocks for a time frame as long as one that could benefit your grandchildren, you'd ideally look for a well-established global company with an unparalleled brand reputation, a wide moat, a track record of high returns, and promising growth prospects backed by products that can address the world's upcoming needs and challenges. Industrial stalwart General Electric (NYSE: GE) is one company that has it all.

Image source: General Electric.

Having freed itself of its volatile financial arm, GE Capital, the General Electric of today is stronger and leaner than ever. Through its seven core industrial business segments, GE gives you exposure to nearly every key industry, including healthcare, technology, aviation, oil and gas, transportation, manufacturing, automotive, and power. There are many diversified companies out there, but it's hard to find one that has gained a solid footprint in each of its business segments. While GE is now greatly exposed to cyclical industries, diversification should mitigate risks and keep the company sailing even during tough times.

More important, GE is tapping aggressively into revolutionary future tech trends like the Internet of Things (IoT), big data, and 3D printing. With your grandkids likely to be living in a world dominated by these trends, GE is one of the best bets that you could make today. In fact, GE truly is a "digital industrial company," as it calls itself. I believe a visionary management, innovative leadership, and opportunistic strategies are among GE's top strengths that should propel it to new heights in the decades to come. As GE grows, so should the returns on your investment for your grandkids.

Pharma is always a good long-term buy-and-hold

George Budwell: With the average age across the globe continuing to rise, healthcare companies in general, and pharma companies in particular, should remain some of the most profitable businesses in the world for a long time to come. In this regard, top biopharmaceutical companies like Gilead Sciences (NASDAQ: GILD) come off as great stocks to buy for your grandkids.

Gilead Sciences is a particularly intriguing name to buy right now for two reasons. First, this top biotech is trading at a steep discount relative to its earnings potential, with a rock-bottom forward price-to-earnings ratio of 6.3. Although it is true that Gilead's core hepatitis C franchise is facing a number of significant competitive and political threats, the company still has plenty of time and resources to stave off a big hit to its top line within the next few years. Unfortunately, the market has grown increasingly impatient with management's rather careful approach on the mergers and acquisitions front, but that doesn't mean Gilead's top line is destined to crash next year, or even in 2018.

Second, the biotech does have a fairly robust and diverse clinical pipeline that's apparently being completely ignored by the market from a valuation standpoint at the moment. Nevertheless, Gilead's plethora of exciting clinical candidates, such as the anti-inflammatory drug filgotinib and its variety of anticancer drug candidates, could generate billion in sales for the company in the not-so-distant future.

All told, Gilead probably won't be a top-performing stock in the short term, but its strong track record of bringing game-changing new medications to market makes it worth buying as a long-term value play.

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George Budwell has no position in any stocks mentioned. Jamal Carnette owns shares of General Electric. Neha Chamaria has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool owns shares of General Electric and has the following options: short October 2016 $85 calls on Gilead Sciences. The Motley Fool recommends Procter and Gamble. 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.