Image source: Getty Images.
Hanging on to a stock through the good times and bad isn't easy, especially if you're sitting on unrealized losses. However, letting go of a great stock during market downturns is one of the top reasons why individual investors, and most hedge funds, underperform the broad market average.
That doesn't mean you should never sell any stocks when they're down, but companies poised for steady, sustainable growth often fall based on sentiment. The healthcare sector is chock-full of examples. People around the world are living longer, and keeping them healthy is increasingly expensive.
We asked three Motley Fool contributors which stock they would buy right now, even if he couldn't let go of it for at least a decade. Here are their favorites.
Express Scripts: Well positioned
Keith Speights: Express Scripts (ESRX) has a track record that few healthcare stocks can match. Over the last two decades, shares of the pharmacy benefits manager (PBM) have soared over 4,600%.
Past performance isn't what makes Express Scripts attractive for the long run, though. After all, much of the company's (and its stock's) growth stemmed from mergers and acquisitions over the years. However, Express Scripts appears to be poised for a long and prosperous future for three key reasons.
First, prescription drug costs are so expensive that practically everyone -- insurers, government programs, employers, and patients -- wants to somehow wrangle control over them. Second, as individuals age, they tend to use prescription drugs more heavily. And America is aging. Third, large PBMs should be better equipped to keep a lid on escalating prescription drug costs. That's primarily because their size gives them more negotiating power with drugmakers, and their large operations allows them to enjoy economies of scale not available to smaller players.
As the largest PBM in the U.S., Express Scripts definitely wields negotiating power, and can claim significant economies of scale. Even better, the vast amount of data that the company can access provides Express Scripts great opportunities to research and develop more effective ways to control drug costs.
A dispute with its largest customer, Anthem, caused Express Scripts' shares to plunge earlier this year. The situation, however, has created what I think is a good buying opportunity for long-term investors.
Express Scripts is currently trading at just over 11 times forward earnings. That's a bargain for a company with great historical stock performance and a solid business model for the future.
CVS Health: A retailer built to last
Brian Feroldi: For a company to be considered a buy and hold "forever" candidate, it needs to have a durable competitive advantage, favorable long-term growth prospects, and a history of treating shareholders well. Very few companies meet all of that criteria, but I'm a firm believer that CVS Health (CVS -1.62%) is one of them.
You might think of CVS Health as just a retail pharmacy chain, but that's only part of the story. The bulk of this company's revenue actually comes from its pharmacy benefits management (PBM) business, which helps other companies save money on their pharmacy costs in exchange for a small fee. This business is all about scale, and since CVS Health operates the second-largest PBM business in the country, the company has created a moat that potential competitors will find hard to assail.
The company's retail business is holding its own, as well. CVS Health is currently the market-share leader in the space, and the company is moving aggressively to expand its competitive edge. CVS Health continuously rolls out new services that have made its stores more consumer friendly, which is going a long way toward keeping potential e-commerce threats in check.
Looking ahead, demand for CVS Health's services are likely to grow considerably. After all, roughly 10,000 Americans turn 65 every single day. That's a huge tailwind that should greatly increase the demand for cost-effective healthcare over time.
With a strong business model in place, and demand growth on the horizon, management can easily afford to use its financial might to reward investors. In addition to paying out a fast-growing dividend that is currently yielding 1.8%, the company has a long history of buying back its own stock.
Take a look at CVS Health's share count over the last five years to see what I mean:
CVS Average Diluted Shares Outstanding (Quarterly) data by YCharts.
Add it all up, and CVS Health exhibits all of the traits that make it a great candidate to buy and hold "forever." With shares currently down about 15% from their 52-week high, right now might not be a bad time to start building a position.
Roche: Best in breed
Cory Renauer: It's easy for investors to overlook Swiss pharma giant Roche (RHHBY 1.07%) when looking for buy-and-hold investments. Owners of big pharma stocks such as Eli Lilly, Merck & Co., and Bristol-Myers Squibb, have earned less per share over the past 12 months than they were earning at the turn of the century.
All three of these companies have suffered losses of key product sales to generic competition. Compared to most intellectual property rights, drug patents are terribly short-lived. Composition-of-matter patents generally last 25 years, and most new drugs require more than a decade to develop.
Patent-protected drug exclusivity is the best competitive advantage there is, but for a limited time. This is why you need to pick drugmakers that are in a position to continue growing their stables of new and emerging drugs -- or pipelines, in industry jargon.
Roche has what I think is the largest, most-promising pipeline in its industry. Cancer medicine spending reached $107 billion last year, and by 2020, is expected to pass the $150 billion mark. Roche is a cancer powerhouse with about $25 billion in oncology sales alone last year.
One reason its existing cancer therapies have performed so well is Roche's early adoption of personalized medicine, the science of tailoring treatments to a myriad of genetically defined patient groups. Its diagnostics division, which recorded about $11 billion in sales last year, provides a level of insight unmatched by its peers.
Image source: Roche.
Beyond oncology, the company is awaiting a review from regulators in the U.S. and EU for a multiple sclerosis drug that is destined to become a game changer, if approved. Ocrevus will be the first to slow progression among about 15% of patients with the most-aggressive form of the disease. It may also become the most-popular drug for the vast majority of multiple sclerosis patients, a disease with annual medicine costs of over $14 billion in the U.S. alone.
With drugmakers, no matter their pedigree, beaten up across the board, Roche shares are trading at a low price of just 17 times this year's earnings expectations. At such a low price, its dividend yield is about 2.6% at present.
The company has raised the annual distribution, in Swiss Francs, for 29 consecutive years, and is poised to continue doing so for many years to come. That makes this a stock I'd happily buy and hold forever.
