Source: 401kcalculator.org via Flickr.
What makes a good long-term investment? For starters, you should look for companies that have a strong record of profitability and earnings growth, as well as an identifiable advantage that should allow them to outperform peers in the future. With that in mind, we asked four of our contributors to share their top picks for the next decade (and beyond). Here's what they had to say:
Matt Frankel: One stock to buy and hold for the next 10 years and more is Digital Realty Trust (DLR 1.50%), a real estate investment trust that owns and operates data centers, which it leases to tech companies such as IBM, AT&T, and Facebook, just to name a few.
The main reason I like Digital Realty for the long term is that favorable industry trends, such as the evolution of social media and the increasing use of mobile broadband data, should create plenty of opportunities for development and acquisitions, not to mention the pricing power that comes with demand outpacing supply.
All signs point toward rapid growth in the need for data centers. In a recent quarter, Intel reported that its data center division saw sales increase by 19% year over year. Cisco published a paper that projected that data center IP traffic will triple in the five-year period from 2013 until 2018. And a detailed GE Capital study found that the average person will own and use seven "connected" devices by 2020, up from just two in 2010.
Over the past decade, Digital Realty produced an outstanding 18.7% average annual total return for its shareholders and has also been able to increase its dividend at a 14% average rate (it currently yields an attractive 5.4%). If the projections for the industry prove to be accurate, there's no reason to believe that this level of performance can't continue.
Sean Williams: If you're looking for a set it and forget it styled investment, I'll be the first to point you in the direction of biotech blue-chip stock Celgene (CELG). What makes Celgene so special is that it's able to use all three methods of growth -- organic, collaborative, and acquisitions -- to its advantage.
Organic growth is the most preferable for investors, and it's the primary method Celgene relies upon to grow its business. As it stands now, Celgene has a trio of key approved therapies: Revlimid for blood cancers, Abraxane for various solid tumors, and Otezla, an anti-inflammatory. Revlimid is already a $5 billion per year drug, Abraxane will soon cross into blockbuster territory ($1 billion-plus in annual sales), and Otezla is expected to deliver at least $1.5 billion in sales by 2017. With Celgene looking to expand Otezla's and Revlimid's labels into about a half-dozen new indications, respectively, the implication is that organic growth vis-à-vis improved demand and pricing power can remain healthfully in the double-digits for many years to come.
Celgene also relies heavily on its approximately 30 ongoing collaborations. Celgene's management wisely understands that it's not going to be able to uncover every blockbuster drug, so in order to improve its chances of landing a blockbuster it's partnered with a number of first-in-class cancer drug developers to explore new treatment pathways. If only a handful of Celgene's products succeed it would still result in substantial profits for the company.
Finally, Celgene has the capacity to buy growth if needed. The recently completed Receptos transaction for $7.2 billion allows Celgene to gain hold of ozanimod, an intriguing oral therapy currently being studied in late-stage SUNBEAM study for relapsing multiple sclerosis. If approved, ozanimod could have peak sales potential of around $4 billion, further diversifying Celgene's product portfolio away from its reliance on Revlimid.
With patent issues not a concern for years to come, and growth expected to remain in the double-digits, Celgene has all the makings of a solid long-term investment.
Selena Maranjian: One stock I'm hoping to buy soon and hold for the long term is airplane maker Boeing (BA -2.87%). Its dividend, which recently yielded a solid 2.8% and has more than doubled since 2012, is great, but there's a lot more to like about Boeing.
A key measure to assess for a manufacturer such as Boeing is its backlog of orders. Well, Boeing recently sported an eight-year production backlog of commercial airplanes -- 5,700 aircraft, that is, worth about $431 billion. Clearly, the company isn't going to run out of business any time soon. Keeping up with demand and delivering on that backlog can sometimes be a challenge, though, which is why Boeing has been beefing up its production in recent years. New offerings can take a long time to develop and bring to market, too, as happened with Boeing's Dreamliner 787 airplane, which has burned through a lot of cash but is approaching a breakeven point.
Meanwhile, Boeing has finished configuring its new 777-9 jet, which can accommodate more than 400 passengers while only using two engines, which keeps costs low. That's likely to appeal to buyers. It has also started building its 737 MAX, the newest version of its immensely popular 737 jet. In its last quarter, revenue jumped 11%, topping analyst estimates, while operating cash flow soared 82%. Boeing's free cash flow recently topped $6.7 billion annually.
A final consideration for investors is that not only is the company rewarding shareholders with ample dividends, but it's also aggressively buying back its own shares, upping its buyback program by $12 billion last year -- a significant sum for an enterprise with a market cap of around $87 billion. It bought back some $6 billion worth in 2014. Reducing the company's share count leaves each remaining share worth more, though buybacks don't make economic sense when a company is overvalued. That doesn't seem to be the case with Boeing, though: with recent and forward-looking P/E ratios of 17 and 14, respectively, both lower than its five-year average of 20, Boeing stock looks appealingly valued.
Dan Caplinger: During turbulent markets, it pays to look at areas that are getting beaten down unfairly and concentrate your efforts on the most promising prospects. Healthcare stocks are one place that offers investors unusual value right now, and rather than picking a particular stock, I'm looking at the Select SPDR Health Care ETF (XLV -0.31%) as a way to get full exposure to the entire sector.
The SPDR Health Care ETF has a wide array of different stocks in the healthcare field. Pharmaceutical companies have held up relatively well lately, and several of the largest of them have a consumer focus that further protects investors during tough markets. At the same time, though, the ETF also has a substantial allocation to biotechnology stocks, and that sector has gotten hit hard after stellar performance over the past couple of years has led to calls that stocks there are overvalued.
Over the long run, favorable demographics still point to the likelihood of strong fundamentals as more people in aging developed countries need greater amounts of healthcare. By giving you exposure to every element of the healthcare industry, the SPDR ETF simplifies your investing and lets you make a call on the sector's health without having to guess which individual company will contribute most to its overall returns.
