I own a few dozen stocks in my own portfolio, and while I'm definitely a long-term investor, I don't necessarily think I'll own all of them for decades to come. On the other hand, there are some that I own and never plan to sell.
With that in mind, here are five "forever stocks" in my portfolio, why I own each one, and which might be the best buys now.
Why I own each of these stocks
Realty Income: Realty Income is perhaps my favorite overall stock in the market, especially as a long-term holding. The company pays monthly dividends that it increases several times per year, and just declared its 572nd consecutive payment. With long-term net leases, it has a remarkably consistent, low-risk stream of income, and there's no reason to believe this will change anytime soon.
Bank of America: I bought Bank of America in early 2016 when shares were trading for just $11, mainly as a value play. However, in the roughly two years since then, the bank has done a great job of improving efficiency, growing its core businesses, and boosting profitability. Bank of America has been one of the most impressive turnaround stories of the post-financial crisis era, and with catalysts like tax reform and rising rates, I can see things getting even better.
Berkshire Hathaway: There's little not to like about Berkshire Hathaway. The company's time-tested business model involves acquiring entire companies, which in turn generate capital that can be used to purchase more companies or to invest in common stocks. Over time, CEO Warren Buffett and his team have proven their ability to complete value-adding acquisitions and increase the company's earnings power.
Public Storage: This is the second REIT on the list, and one of about 10 in my portfolio. REITs can be excellent forever stocks for both their long-term growth potential and high dividend yields. Self-storage is a particularly attractive type of real estate. In the case of Public Storage, the company has a highly efficient business model due to low maintenance and other expenses (it only needs about 30% occupancy of its storage facilities to break even) and a nearly debt-free balance sheet.
Apple: I could write an entire article about why I like Apple, but just to name a few things that make it a great forever stock, the company has some great competitive advantages, such as pricing power and financial flexibility, as well as one of the most fiercely loyal customer bases in the world. Now that it will actually be able to use its foreign profits, I think the coming years could get very interesting for Apple's shareholders.
This is just a sampling of companies that make great forever stocks. To help you in your own research, it's useful to recognize some predominant traits. For example, great forever stocks often have:
- Durable competitive advantages (Apple is a perfect example of this).
- A reasonable amount of debt. Apple and Berkshire have no net debt, but in industries like banking and real estate, this isn't practical.
- Shareholder-friendly management. Look for things like a strong track record of dividend increases and management with lots of equity ownership, just to name a few.
- An industry that will be around in 100 years. People will always need places to store their possessions, safe places to keep their money, and the latest ways to keep in touch with the world.
Which are the best buys now?
To be clear, I don't think that buying any of these five stocks now is a bad idea. In fact, I could see myself adding to all five positions over the coming years, even if the stock prices stay the same or increase.
Having said that, the two REITs on the list -- Realty Income and Public Storage -- look like the best buys now. While the stock market as a whole has been performing well, REITs have not. This is mainly due to rising interest rates. Just like bond values fall when rates rise, the same is generally true for income-based investments like REITs.
What's more, retail-focused and self-storage REITs have faced pressure recently. High-profile retail bankruptcies and store closures have made investors nervous when it comes to any retail-related business, and oversupply worries in the self-storage industry could result in lower profitability for companies like Public Storage.
However, if you're investing from a "forever" perspective, these two REITs are a great way to take advantage of the weakness. Realty Income's retail properties aren't nearly as sensitive to e-commerce competition as the market seems to think, and an industry leader like Public Storage has the strength and scale to make it through difficult times better than smaller peers.
What I really mean by "forever"
As a final point, these are five stocks I plan to hold forever, not that I necessarily will. As much as any particular stock fits your long-term goals, it's still important to stay informed of the company's progress to ensure that your reasons for buying still apply. Short-term weaknesses, like those I described with Realty Income and Public Storage, are OK. On the other hand, fundamental changes like the loss of a competitive advantage or taking on too much debt can be good reasons to rethink your forever stocks.
The point is to set yourself up with stocks that you can see yourself owning for the rest of your life while still paying attention to your portfolio and making necessary modifications -- not to buy stocks that you simply buy and forget about.
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Matthew Frankel owns shares of Apple, Bank of America, Berkshire Hathaway (B shares), Public Storage, and Realty Income. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.