It's one thing to be a long-term investor; it's entirely another to be an investor with a time horizon that lasts a quarter-century. Businesses that can stand the test of time that long need to have some barriers to entry that make their businesses nearly undisruptable. Just look around at the hottest names on Wall Street today -- how many were great investments back in 1993?
Finding investments that can reward you over such long periods can do miracles for your portfolio -- as long as you can find the right ones. So we asked three Motley Fool investors to highlight a stock they see as a great investment with solid growth prospects over the next 25 years. Here's why they picked W.W. Grainger (NYSE: GWW), Wynn Resorts (NASDAQ: WYNN), and Waste Management (NYSE: WM).
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Getting back on the growth track
Reuben Gregg Brewer (W.W. Grainger Inc. ): Grainger had a bad year in 2017, with adjusted earnings down 1% year over year. The big issue, however, wasn't something new. The industrial parts supplier has spent the last couple of years adjusting its business model to deal with the increasing importance of internet shopping. Previously, Grainger used high list prices to help push customers into long-term contracts with lower price points. The transparent pricing of the internet led customers to buy from other vendors.
That said, the company's model shift toward more-transparent pricing appears to be working. Sales to large- and medium-size customers improved each quarter in 2017. And based on first-quarter results, Grainger has upped its full-year sales and earnings guidance for 2018. Earnings could advance as much as 33%, though the comparison is an easy one because of the weak showing in 2017. Still, it clearly looks like the company has the internet issue under control.
Grainger has hiked its dividend for an incredible 47 consecutive years. The most recent increase of 6% came in April. Although the yield of around 1.8% isn't amazing, the streak speaks to a company that has managed to thrive through good years and bad. And now that it has adjusted to the latest headwind, long-term investors looking for a growth-oriented company should take a deep dive. Grainger truly looks like it's getting itself back on the growth track.
The king of high-end gaming
Travis Hoium (Wynn Resorts): Entertainment and travel businesses are growing around the world as more people amass the disposable income to take vacations and gamble in casinos. That's helped drive growth in the gaming industry for decades, which will likely continue, particularly in Asia, where gaming infrastructure is still being built out.
In China alone, the opportunity is enormous. McKinsey estimates that 54% of the country's 1.4 billion population, or about 750 million people, will be considered upper middle class by 2022 (measured by annual income over $16,000), and that's helping to make Macau the world's largest gaming market with $33 billion in gaming revenue from casinos in 2017. One company riding that wave is Wynn Resorts, one of the leading casino operators in Macau.
In the first quarter of 2018, Wynn Resorts generated $1.72 billion of revenue and adjusted property EBITDA, a proxy for cash flow from a resort and casino, of $564.3 million, an annualized pace of $2.23 billion. And 75% of both revenue and adjusted property EBITDA was generated in Macau. By simply riding the growing middle class in China, Wynn Resorts could be a growth stock for decades to come.
But Wynn Resorts is also building the $2.5 billion Wynn Boston Harbor just outside downtown Boston, and has made winning a gaming concession in Japan a top priority. Estimates of Japan's potential gaming market range from $5 billion to $40 billion each year, which could dwarf the $6.5 billion in gaming revenue from casinos on the Las Vegas Strip over the past year.
Properties that generate over $2 billion of cash flow each year are a solid foundation, and I think Wynn Resorts' growth days are just beginning. Las Vegas, then Macau, now Boston -- but Japan could be next, and if Wynn Resorts can build there, it could have one of the most profitable casinos in the world.
It's about growing your bottom line
Tyler Crowe (Waste Management): I hate to be that annoying person who gets into semantics about what growth means, but to me the word "growth" means growing the value of my investment. I could care less about revenue growth if it doesn't translate to returns in my portfolio. So if I want a growth stock for multiple decades, I want a stock that can grow earnings per share consistently and let me use the power of reinvested dividends to build wealth over time. That's why, if I'm going to invest in a stock that will grow over the next 25 years, I'm going with slow and steady Waste Management.
Waste Management is the quintessential stock for long-term investors. It has incredibly high barriers to entry to keep new competitors from taking market share, and its business of collecting refuse and handling it at its landfills and transfer stations is an incredibly sticky business (honestly, when was the last time you said, "You know, we should switch trash handlers"). That means the company has pricing power without much recourse.
On top of the great traits it has as a business, its management team has been an excellent steward of shareholder capital over the years. It has been great at manufacturing solid earnings-per-share growth thanks to modest revenue increases and a steady diet of share repurchases. On top of that, it has consistently grown its payout to help those of us reinvesting those dividends back into the stock.
Waste Management will never deliver high revenue growth rates, but it also isn't that likely to be disrupted over the next decade or more. So as long as it can keep manufacturing shareholder returns as it has over the past decade, it seems like a surefire bet to grow for another 25 years.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. Travis Hoium owns shares of Wynn Resorts. Tyler Crowe owns shares of Waste Management. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.