Best Investments for the Next 5 Years

It's nearly impossible to project anything five years out. If it were easy, we'd all know what stocks to put in our portfolio. Ironically, however, thinking long-term is a healthy habit for stock market investors. It filters out the noise and helps investors think about the underlying fundamentals that drive businesses over the long haul. In the next few paragraphs, I'll uncover two stocks that could make some of the best investments over the next half-decade.

Apple (NASDAQ: AAPL  )
PC sales are declining, and smartphone and tablet sales are booming. If there's one company that is sure to benefit from this trend over the next five years, it's Apple. Yes, Apple may have lost market share over the last 12 months to Samsung, but it still captures the majority of worldwide smartphone profits. In fact, a recent study by Canaccord Genuity found that Apple took 72% of worldwide handset profits in the fourth quarter.

Another favorable factor for Apple: It is a cash cow. Even as the company's margins continue to decline, it's still adding far more money to its balance sheet than it's paying out in dividends. In 2012 alone, the company earned $46.3 billion in free cash flow on $164.7 billion in revenue. Free cash flow, of course, is equal to cash provided by operations minus capital expenditures, so this is the cash Apple generated after it took care of its operating expenses and its long-term investments.

Though 2013 may have been tough on the stock so far, analysts, on average, expect earnings to increase at about 19% annually over the next five years.

Berkshire Hathaway (NYSE: BRK-B  ) (NYSE: BRK-A  )
The Oracle of Omaha, Warren Buffett, seems to be on his A game -- even at 82 years old. Berkshire Hathaway shares almost tripled the S&P 500's 11.8% return over the last 12 months, with a 30.1% gain. Even better, his lieutenants, Todd Combs and Ted Weschler, have both managed to outperform the S&P 500 by double-digit margins. In fact, they did better than Buffett himself, he admitted in the 2012 annual letter to shareholders.

Though it's too early to tell whether Berkshire's acquisition of H.J. Heinz will play out nicely, the outcomes of the company's major acquisitions and purchases over the last five years have in time mostly silenced the naysayers who so eagerly criticized Buffett at the time of the purchases.

A case in point is the company's largest acquisition ever: Burlington Northern Santa Fe, which it acquired in 2010 and turned out to be a significant success. In 2010, the company earned $2.45 billion; just two years later, the railroad contributed a whopping $3.37 billion to Berkshire's earnings. Since Berkshire acquired BNSF, the Dow Jones U.S. Railroads Index has more than doubled the returns of the S&P 500, snapping up a return in excess of 80%.

Berkshire isn't lacking in stock ideas, either. In 2011, Berkshire started picking up shares of IBM like nobody's business. Now Berkshire owns 6.1% of the company. The stock has gained about 15% since Buffett started buying.

The management of the well-diversified conglomerate of exceptional businesses hasn't lost its touch at capital allocation, which will ultimately be the driver of future growth.

What are your picks?
I think these could be among the best investments over the next half-decade. In fact, I've made outperform CAPScalls on both stocks. Do you think these stocks are great bets for the next five years? What are some of your favorite bets?a

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 10, 2013, at 1:50 AM, Hanage wrote:

    Yes I agree with both these choices.

    I would also add Disney and Starbucks as great long-term investments.

    Disney is moving from an investing phase to a growth phase. We will be seeing many examples of integration between their businesses - movies, retail, tv and theme parks. And the market may be underestimating the value of the LucasFilm acquisition.

    Starbucks is transforming what they sell and how they sell it. They are strategically adding juice, food and tea selections to increase their potential market. They are also selling more products outside their stores. Eventually Starbucks can become a global food and beverage company giant. Teavana has huge potential too, especially in Asia and the Middle East, where tea is the preferred choice. And the success of the Starbucks card and loyalty program is amazing. An ecosystem is being created.

  • Report this Comment On April 10, 2013, at 4:04 PM, ethanfrome wrote:

    Ok,

    But how many people in the world can afford to buy a stock that costs $159,400 a SHARE.

    That's where BRK-A is at 4:00PM New York City time on Wednesday April 10th 2013.

    Even Apple is more than 1 full weeks pay for more than half of all of the people that work in the United States.

    What a useless story for anybody that earns less than 1 million net per year.

  • Report this Comment On April 10, 2013, at 4:18 PM, ethanfrome wrote:

    Hell, for the price of one share of BRK-A I could buy 21,250 shares of CLM (Cornerstone Strategic Value Fund).

    With those 21,250 shares of CLM I could be getting $2125 a MONTH in dividends (at the current rate) and if I get $2125 a month for the next 60 months I'd have 21,250 shares PLUS $127,500 dollars on top of that (not taking into account that ther would be hefty capital gains taxes every year).

    But still, for the price of 1 share of BRK-A I could have 21,250 shares of CLM and be getting as much as $2125 a month in dividends to buy other stocks. I'll take that road thank you.

  • Report this Comment On April 10, 2013, at 5:00 PM, PCG100 wrote:

    You don't have to buy BRK-A, you buy BRK-B which is somewhere around $106 today.

    As for Apple, you build up the amount you invest over time, at the rate you can afford to save. $500 hundred is not a lot to invest. Instead of buying 100 shares of a $5 stock, buy 1 share of Apple, Which is actually under $500 right now.

  • Report this Comment On April 12, 2013, at 12:41 AM, squadus wrote:

    You guys must be illiterate. It says BRK-B not BRK-A.

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