6 Companies We'd Buy and Hold for the Next Decade
"Forever" is always the ideal holding period, at least in Warren Buffett's battle-tested investing philosophy. If you can't hold that stock forever, truly long-term investors should at least be able to buy it and then forget it for 10 years.
On that note, we asked a panel of Motley Fool contributors what stocks they might consider holding for a decade, no questions asked. They came up with a rainbow of high-quality investment choices.
Here you'll see why these Fools would hold digital video service Netflix or organic food producer WhiteWave Foods . There's the dividend-backed power of PepsiCo and the innovative growth of Tesla Motors , not to mention the brand power ofUnder Armour and the strong insider ownership in Chipotle Mexican Grill .
Tying this diverse group of stocks together is their great value for investors with lots of staying power. Here's the whole nine yards.
Image source: Tesla.
Tamara Walsh (Tesla Motors): Investing in high-growth stocks and letting them run for years on end is one of the best ways to achieve outsized gains in the stock market. That's why Tesla Motors is one of my favorite stocks for the next decade. Not only is the electric-car maker still in the early stages of its growth story, but it's also on track to put its mass market Gen III car on the road by 2017. The build out of Tesla's massive Gigafactory is yet another reason for investors to own this stock for the long haul.
The Gigafactory is intended to enable Tesla to produce enough lithium-ion cells by 2020 to power 500,000 electric cars annually. While this is still years away, it would ultimately lower the cost of batteries and allow Tesla to sell its Gen 3 model to the masses -- rewarding long-term shareholders in the process. There are, of course, countless execution risks involved in this strategy.
However, shareholders can rest easy knowing the company is in goods hands. Tesla's visionary chief executive, Elon Musk, has a track record of proving the critics wrong and overdelivering on expectations. He is a value creator. Under Musk's leadership, Tesla Motors has grown from a niche upstart automaker into one of the most disruptive car companies on the planet.
Dan Caplinger (Chipotle): After remaining on the sidelines far too long, I recently bought shares of Mexican food restaurant chain Chipotle Mexican Grill. My move was was inspired by a slight pullback following the company's latest earnings report, in which impressive growth could not keep the stock from falling 10%. Comparable-restaurant sales soared by 16% during the fourth quarter, yet investors focused instead on the rapid rise of food-ingredient prices, as inflationary pressures more than offset the menu price increases that Chipotle passed on to customers during the year.
Commodity pressures might hurt Chipotle's margins in the near term, but the restaurant chain clearly has an increasingly loyal customer base that is willing to stand in long lines for the high-quality dining experience that Chipotle has become famous for. Moreover, Chipotle has huge growth potential, with plenty of room for further penetration domestically while it explores entering international markets that have as yet remained untouched.
A decade from now, Chipotle could look much bigger than it does now -- and investors who buy now might well feel they got in on the ground floor of a huge opportunity.
Image source: Netflix.
Anders Bylund (Netflix): Shipping its first DVD mailers in 1997, Netflix can now look back at nearly two decades of history. Since the company joined the public markets in 2002, Netflix shares have gained more than 6,000%. That's 60 times your original investment, if you held on through hard times like the Blockbuster wars, the Wal-Mart scare, and the Qwikster blunder. So Netflix has already made plenty of investors very rich.
The stock won't deliver another 60-fold value increase over the next decade (if it did, we'd be looking at a monstrous $1.7 trillion market cap), but Netflix is most certainly poised to continue crushing the market. In fact, based on what we know today, 10 years from today just might be the perfect holding period for this exploding growth stock.
Nobody knows what the world will look like in 10 years -- not even Warren Buffett. So rather than locking up my Netflix shares and throwing away the key, I'd like to come back and reassess the situation in 2025.
Long before then, Netflix will have completed its current business trajectory.
- The DVD and Blu-ray service will be gone, either shut down entirely or spun off from the main business.
- Netflix willoffer digital streaming services worldwideno later than 2017. Add another eight years, and you'll simply see a much more mature, user-friendly, and content-packed service.
- The company will also be fantastically profitable. Netflix sees no reason why international margins shouldn't eventually match domestic profitability levels, and that watermark is still inexorably rising.
- At the same time, Netflix will establish itself as a major content creator as well. Outsourced experiments such asHouse of Cards and Marco Polo are only the beginning; the company must become a serious media studio as well.
Put it all together with minimal competition risks -- the market is easily large enough for several digital media giants on a global level -- and you'll get massive profits out of Netflix in 2025. I'm talking tens of billions of dollars in annual earnings, and a matching long-term surge in Netflix share prices.
Again, the world might be ready for a totally different entertainment model in 2025. But until then, I'm happy to hitch my wagon to Netflix. I can't wait to see this skyrocketing growth story playing out.
Joe Tenebruso (Under Armour): In Tier 1, the realmoney portfolio I manage for The Fool, I like to invest in businesses that I can own for years -- and potentially decades -- to come. But for that to be the case, these businesses must possess certain characteristics. Some of the most important are strong competitive advantages, long runways for growth, and excellent leadership. Under Armour possesses all three.
Under Armour's primary competitive advantage is the strength of its brand. The company's products are well respected by athletes across the U.S. and, increasingly, the world. Under Armour's bloodpumping marketing campaigns resonate with athletes and their fans, helping to position the company well within the healthier lifestyle megatrend.
Within that trend, Under Armour has several large growth opportunities ahead, particularly in international markets and in its directtoconsumer business. Foreign sales currently comprise only 9% of UA's total revenue, yet international sales have been exploding higher, to the tune of 123% yearoveryear growth in the fourth quarter. In that same period, directtoconsumer revenue increased 27% and comprised 38% of Under Armour's total revenue. Together, these businesses should drive further growth as Under Armour accelerates its international expansion and e-commerce steadily grows as a percentage of global retail sales.
Leading that charge is founder and CEO Kevin Plank. Over the last two decades, Plank has built Under Armour into a business with more than $3 billion in sales and a $16 billion market cap, all from the humble beginnings of selling Tshirts out of his car. Now 42, Plank still owns more than 17% of the business, helping him to amass a net worth of more than $3 billion.
That aligns Plank's interests with those of Under Armour's shareholders, and gives me confidence that Tier 1's investment will be in good hands for years to come.
Bob Ciura (PepsiCo): When I think about the stocks I plan on holding for the next decade (or more), one virtue is a must: consistency.To be comfortable holding on to a company that long, I need to be sure the company's products won't suddenly be obsolete or surpassed by an unforeseen competitor. The stocks I plan on owning that long have to be the slowandsteady type. PepsiCo is an ideal stock for just that situation.
PepsiCo is about as consistent as they come. The company operates in food and beverage, which is ideal for longterm investment because people will always have to eat and drink. PepsiCo's balanced, diversified business in the industry provides a valuable measure of reliability.
PepsiCo's brands hold leadership positions in their categories, including its flagship Pepsi products and its FritoLay food business. In all, PepsiCo has 22 brands that each bring in at least $1 billion in annual sales. I feel comfortable holding my PepsiCo shares for a long time, because I don't envision Pepsi or FritoLay becoming obsolete anytime soon.
Lastly, PepsiCo is one of the premier dividend stocks in existence. The stock currently yields 2.8%, and Pepsi has raised its dividend for 43 consecutive years -- most recently a strong 7% payout increase, which is well above inflation.
PepsiCo is an industry leader, with a stable of billiondollar brands, and a steadily growing dividend. I'm confident this company will continue creating value for its shareholders for many years, which is why I plan on holding my shares for the next decade.
A couple of WhiteWave's better known food brands. Source: WhiteWave.
(WhiteWave Foods): Buying and never selling is Warren Buffett's holding period for a stock, which is why I too look for companies I can hold for the very long term. With this in mind, I feel comfortable saying organic foods producer WhiteWave Foods can be comfortably held for at least the next decade.I received my shares of WhiteWave as part of its spinoff from Dean Foods in 2013 and have watched as they have risen more than two-and-a-half times since then. There's good reason to think there's much more growth ahead.
Organic food sales hit an estimated $42 billion in 2014, and are expected to continue growing at a near-16% compound annual rate through 2020. WhiteWave Foods is perfectly positioned to capitalize on the heightened awareness of and demand for plant-based food and beverages.
Net sales of PBBs grew 14% last year, with organic sales accounting for 10% of that growth,and its Silk brand of beverages -- the No. 1 brand in the market -- jumped 15% year over year. Fresh food sales, the segment comprising last year's acquisition of organic salads, fruits, and vegetables producer Earthbound Farm, hit $575 million in 2014.
Capitalizing on global growth potential, WhiteWave's European food and beverages division recorded 22% growth in FY 2014 from the year-ago period.Coupled with its partnership with one of China's largest dairy producers, Mengniu Dairy, the organics producer has unique positioning in the market that should keep it on a growth trajectory for years to come.
Investors should understand it won't be a straight line to market dominance. The appeal and profits of the market will attract competitors -- for example,Coca-Cola is looking to offset declining soda sales. Its first foray into the market is a premium milk beverage, and there has long been talk of it partnering with or buying WhiteWave Foods.
When you're the industry leader you become the target for the competition, but WhiteWave Foods' global dominance insulates it from many of the slings and arrows hurled its way. This should be a stock investors can own for the next 10 years and beyond.
The article 6 Companies We'd Buy and Hold for the Next Decade originally appeared on Fool.com.
Anders Bylund owns shares of Netflix and Tesla Motors. Bob Ciura owns shares of PepsiCo. Dan Caplinger has no position in any stocks mentioned. Joe Tenebruso has no position in any stocks mentioned. Rich Duprey owns shares of Dean Foods Company and WhiteWave Foods. Tamara Rutter owns shares of Netflix, Tesla Motors, and WhiteWave Foods. The Motley Fool recommends Chipotle Mexican Grill, Coca-Cola, Netflix, PepsiCo, Tesla Motors, Under Armour, and WhiteWave Foods. The Motley Fool owns shares of Chipotle Mexican Grill, Netflix, PepsiCo, Tesla Motors, Under Armour, and WhiteWave Foods and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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.
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