The world will change a lot in the next 50 years. But there will be companies that survive those decades, and investors who buy and hold could make a lot of money.
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We asked three of our investors for the stocks they would hold for the next 50 years, and American Water Works Inc. (NYSE: AWK), iRobot Corporation (NASDAQ: IRBT), and Waste Management, Inc. (NYSE: WM) were on the short list. Here's why they're built to last.
Quenching your thirst for stable returns
Brian Feroldi (American Water Works): Like you, I have no idea what kind of technological advances are coming our way over the next 50 years. That makes it difficult to project which businesses will still be thriving in a few decades' time. However, I am certain that humans will always need access to high-quality drinking water. For that reason, I think that American Water Works will still be pumping out profits for decades to come.
American Water Works is a regulated utility that provides fresh drinking water to 1,600 communities in 16 U.S. states and Canada. The company's business model is to acquire water assets in cash-strapped communities that are in desperate need of investment. The company then takes over operations and invests heavily to improve the water infrastructure. In return, regulators allow the company to earn good returns on capital, which is passed along to shareholders in the form of a rising dividend.
This win-win business model has helped American Water Works to grow into the largest publicly traded water utility in the country. In return, long-term shareholders have made out like bandits:
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Looking ahead, management estimates that only 16% of drinking-water assets are currently controlled by investors. This number stands a good chance of moving higher over time, as more communities look for ways to fix their water infrastructure without busting their local budgets. That should prove to be a long-tail opportunity for American Water Works, which gives me confidence that this company will continue to treat its investors well for decades to come.
The robots are taking our jobs (and our chores)
Jason Hall (iRobot): One of the most common news topics in recent times is how automation is disrupting so much about how humans work. This shift is affecting nearly every industry, from mining to manufacturing to fast food, and it's a trend that is far more likely to accelerate than peter out. While this is disrupting many traditional industries and impacting workers, it's also driving down prices, improving the quality of many industrial and consumer goods, and leading to lots of innovation in manufacturing.
Furthermore, the segment of the robotics and automation industry that iRobot operates in is also improving the quality of life for people, and reducing how much time they must spend performing basic menial tasks at home. And the huge growth potential ahead of the company could lead to massive wealth creation for investors over the decades ahead.
Last quarter alone, iRobot delivered big growth, reporting a 23% jump in sales and 59% increase in earnings per share, on a wider and improved offering of home robots in more markets than ever.
And while this has the company's stock trading at its all-time high, iRobot is still a very small company, with a market cap below $3 billion, and less than $700 million in sales over the past 12 months. Looking 50 years into the future, there will be more robots doing more things for us, and many of them will have the iRobot emblem on them. If you're looking for a decades-long trend to profit from, iRobot is an excellent stock to buy and hold for the next 50 years.
Garbage is the forever business
Travis Hoium (Waste Management, Inc.): We don't know a lot about what the world will look like in 50 years. But I'm willing to bet there will still be garbage and recycling. And that's good news for Waste Management's business.
The landfill, hazardous-waste, and recycling services Waste Management provides are crucial for residents, businesses, and municipalities across the country. And as one of the leading players in the market, the company has reaped steady revenue and earnings over the long term. You can see that Waste Management isn't exactly a growth stock, partially because it wins and loses customers over time depending on bid prices, but it's a steady performer:
What investors will appreciate over the next 50 years is the stream of dividends coming from the garbage business. Right now, Waste Management pays a 2.3% dividend yield, and the dividend has grown 72% over the last decade. If that trend continues, investors can count on a steady dividend that's backed by the constant need for garbage and recycling to go somewhere. That's the kind of business I can get behind, now and in 2067.
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Brian Feroldi has no position in any stocks mentioned. Jason Hall owns shares of iRobot. Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends iRobot. The Motley Fool owns shares of Waste Management. The Motley Fool has a disclosure policy.