Time and again the data have shown that slow and steady wins the race when it comes to investing. While dicing in and out the market and trying to time big jumps or steep drops may work from time to time, it's an impossible task to perfect over the long run.
According to a study released last year by J.P. Morgan Asset Management, buying and holding the S&P 500 between Jan. 3, 1995 and Dec. 31, 2014 would have produced an aggregate gain of 555%, or 9.9% per year. Not a shabby return considering that the S&P 500 lost half its value during the dot-com bubble and 57% of its value at its trough during the Great Recession. This return is also well above the long-term historic return of stocks at 7%, inclusive of dividend reinvestment.
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Comparatively, missing just 10 of the best trading days over this 5,000-plus day period meant kissing more than half of your gains goodbye. Miss a little more than 30 of the best trading days and your entire 555% gain would disappear. That's how important buy-and-hold investing is.
Six stocks to buy and hold
So what top stocks should you be looking to buy and hold for at least the next decade? Here are six to consider, each of which sports clear-cut competitive advantages that should allow them to remain industry leaders through at least 2027.
When it comes to social media dominance, Facebook (NASDAQ: FB) is in a class of its own. The company ended the first quarter with a record 1.94 billion monthly active users, 1.28 billion daily active users, and 85% of its revenue generation came from mobile advertising, up from 82% in Q1 2016. Having as many users as it does, as well as four of the seven most popular social media networks in the world (Facebook, WhatsApp, Facebook Messenger, and Instagram), Facebook possesses what could reasonably be described as the strongest ad-pricing power on the planet.
And here's what's really scary: Facebook is just scratching the tip of the iceberg. It hasn't monetized WhatsApp or Messenger yet, it only recently ramped up advertising on Instagram, and its average revenue per user in emerging market countries is well below that of the U.S. and Canada. In other words, Facebook has what looks to be a multi-decade growth opportunity, and has buy-and-hold written all over its stock.
2. Intuitive Surgical
If you want competitive advantages, look no further than surgically assisted robotic device-maker Intuitive Surgical (NASDAQ: ISRG). The company ended 2016 with 3,919 installed da Vinci surgical systems worldwide, which is well more than all of its competitors have combined! It takes a lot of time and money to build up the network and rapport Intuitive Surgical has with the medical community.
But here's the best part: its margins are only going to get better as its installed machine base grows. Though the da Vinci surgical system typically costs around $1.5 million, the machine itself is a low-margin segment for the company. The juiciest returns are seen from the sale of instruments for procedures and service on the machines. These high-margin services are a perfect example of a razor-and-blades business model, and they practically ensure that Intuitive Surgical only gets better with time. The company's push into more general soft tissue surgeries will simply be icing on the cake for long-term shareholders.
Another company poised to remain an industry leader over the next decade is payment processor Visa (NYSE: V), which most Wall Street analysts forecast can grow by a double-digit percentage annually. Visa is dominant in the U.S. with 50.6% market share, which is nearly 28-percentage-points higher than its next-closest rival. This gives it unique rapport with merchants and makes it a go-to payment partner. Visa, along with MasterCard, is also not a direct lender, meaning loan delinquencies are not a concern.
However, the real allure is what Visa can do in overseas markets. It recently acquired Visa Europe, and it's has a multi-decade opportunity to grow its payment processing network in Africa, the Middle East, and Southeast Asia. Considering that roughly 85% of the world's transaction are still conducted in cash, Visa has ample channels to grow its international presence. It's certainly a buy-and-hold candidate over the next decade.
4. Kinder Morgan
The oil and gas industry may not be in the best shape at the moment, but a company with clear-cut advantages within the industry is midstream giant Kinder Morgan (NYSE: KMI). It's been working to reduce its leverage in recent months by selling off non-core assets. Last year alone it managed to lop off more than $3 billion in total debt, with a goal of cutting its debt-to-adjusted EBITDA ratio below five.
Kinder Morgan's focus on natural gas should also be a boon. Natural gas prices have dropped over the past couple of years, providing an impetus for utilities to make the switch away from coal toward natural gas. In fact, the 20-year forecast from the Energy Information Administration in 2015 called for a 45% increase in natural gas production to 35.5 Tcf by 2035. Someone has to transport and store all of that natural gas, and Kinder Morgan looks to be first in line. Best of all, with Kinder Morgan predominantly working with fixed-fee contracts, it avoids a lot of exposure to wholesale natural gas pricing.
Companies that provide a growing inelastic product should also do well over the next decade, which is why blue chip biotech Celgene (NASDAQ: CELG) is worth strong consideration. Celgene's lead product, Revlimid, a drug designed to treat multiple myeloma and a few other cancer types, has been benefiting from longer duration of use, strong pricing power, and high multiple myeloma market share. Celgene also worked out a deal with generic drug developers to keep cheaper version of Revlimid mostly off the market until the end of Jan. 2026. In other words, Celgene gave its lead drug the opportunity to possibly become the best-selling drug in the world by the early 2020s.
The company has also been using acquisitions and collaborations to its advantage. Celgene acquired Receptos in 2015, adding experimental drug ozanimod to the mix. If approved for both multiple sclerosis and ulcerative colitis, ozanimod could generate north of $4 billion in annual sales. Combine this with dozens of oncology and ant-inflammatory collaborations for potentially first-in-class therapies, and you have a recipe for double-digit annual sales growth for years to come.
Last, but not least, put your feet up and a grab a cup of Joe with Starbucks (NASDAQ: SBUX) for the next decade. When it comes to Americana, there are few businesses that consumers gravitate toward more than Starbucks. Its loyalty rewards have worked out phenomenally in boosting foot traffic, as has the company's efforts to produce limited-edition drinks and expand its food offerings to include more nutritious/healthy options. Just as Facebook has ad-pricing power and Celgene drug-pricing power, Starbucks has little issue passing along price increases to its customer base.
Yet, it's the company's innovation and expansion opportunities that are the most exciting. Increasing its physical presence in China, along with Starbucks' efforts to go after a more affluent and coffee-loving clientele through its premium coffee locations (aka Starbucks Reserve Roastery), demonstrate the reach and innovation that can drive mid-single-digit growth year in and year out.
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Sean Williams has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Celgene, Facebook, Intuitive Surgical, Kinder Morgan, Mastercard, Starbucks, and Visa. The Motley Fool has a disclosure policy.