We're big fans of Warren Buffett here at the Motley Fool. Thus, when the Oracle of Omaha says that his "favorite holding period is forever," we take note.
We asked three of our contributors to channel their inner Warren Buffett and choose a stock that they'd have no problem buying and holding for the decades to come. They selected clean energy-focused utility Xcel Energy (NASDAQ: XEL), hydropower leader Brookfield Renewable Partners (NYSE: BEP), and tech giant Cisco Systems (NASDAQ: CSCO). Read on to find out why they believe these stocks seem like excellent "forever" holdings.
A visionary electric power company
Maxx Chatsko (Xcel Energy): The business owns four regional electric utilities positioned within the American Wind Corridor, which is home to some of the best wind power potential on the planet. That's helped to give management the confidence to make an ambitious and bold promise: Xcel Energy will generate all of its electricity from zero-carbon sources by 2050.
For reference, the company's power mix leaned on wind and solar for 22% of its electricity generation at the end of 2018, while nuclear contributed 13% and other renewables such as hydroelectric contributed 3%. Wind and solar alone will jump to 46% of the total generation mix by 2027 thanks to an ambitious power plan in Colorado. So the company is well on its way compared to most utilities, but investors also know the road to 100% zero-carbon electricity represents an incredible growth opportunity.
Xcel Energy has taken advantage of its geographic location to go all-in on wind farms, which don't require fuel, which makes them cheaper to operate than coal-fired or natural gas-fired power plants in the long haul. That has freed up capital to invest in new renewable energy projects, increase its above-average dividend that currently yields 2.9%, and explore futuristic products and services such as at-home charging for electric vehicles (EVs). Regarding the latter, the utility expects as many as 2 million EVs in its service areas by 2035, which could provide a significant boost to its business.
Given the long-term certainty surrounding its vision, the new growth opportunities it will create, and the fact shares trade at just 20 times future earnings, Xcel Energy is an easy stock to consider for investors with a long-term mindset.
A clean energy leader
Matt DiLallo (Brookfield Renewable Partners): Hydropower-focused Brookfield Renewable Partners has outperformed the market by a wide margin since its formation. That's mainly due to the company's ability to buy renewable power-generating assets at bargain prices and then increase their profitability through improved operating and financial performance.
The company currently anticipates that it can grow the cash flows of its existing portfolio at a 6% to 11% annual rate over the next five years, which includes some benefit from development projects it has underway. That embedded growth alone should support 5% to 9% yearly increases in the company's 6%-yielding distribution.
On top of that, the company maintains a strong financial profile, which gives it the flexibility to continue making value-based investments. Brookfield Renewable recently made one such deal by securing a 750 million Canadian dollar ($558 million) investment in a portfolio of Canadian hydropower plants. The company also just acquired two wind farms in India. The company's global mandate and ability to invest across several different renewable technologies opens up tremendous opportunities for future investment.
In Brookfield's view, there is as much as an $11 trillion opportunity set in its core market alone for renewable investment. That massive potential makes it an ideal company to hold in the decades ahead.
A successful transformation
Tim Green (Cisco Systems): Networking hardware market leader Cisco has been transforming itself over the past few years. The company has bet on subscriptions, software, and services, reducing its dependence on one-off sales of switches and routers. Selling switches and routers is still the company's core business, but those products are increasingly being sold as part of subscription packages. The Catalyst 9000 series of switches, for example, is bundled with software and sold as a subscription.
This shift toward recurring revenue has helped Cisco post a streak of solid growth, despite tariffs on Chinese products and general macro-economic uncertainty. The company grew sales by 6% year over year in its fiscal third quarter, excluding divestitures, and it expects sales to grow by 4.5% to 6.5% in the fourth quarter. Unlike some companies struggling with a slowdown in the data center market, Cisco so far appears unscathed.
If trade tensions continue to escalate, Cisco may feel at least some pain. But in the longer run, the company has positioned itself to continue to dominate the market for networking hardware. And Cisco's bets on other areas, like security and collaboration, can help drive growth as well.
Cisco stock trades for around 17 times the average analyst estimate for full-year adjusted earnings. That's not clear-cut bargain territory, but it's not an unreasonable price to pay for this dominant company.
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Matthew DiLallo owns shares of Brookfield Renewable Partners L.P. Maxx Chatsko has no position in any of the stocks mentioned. Timothy Green owns shares of Cisco Systems. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.