Market whims and whispers can cause stocks to trade violently in the short term, but strong companies with top-shelf management and rock-solid financials can deliver returns that trounce the market long term. Because investing for longer periods has proven to outperform shorter periods of trading in and out of stocks, we asked five top Motley Fool contributors to give us their best ideas of stocks to buy in multi-decade portfolios. Read on to find out which five stocks they picked, and why they think you ought to consider owning them.
Image source: Whole Foods Market.
Steve Symington: Though shares of Whole Foods Market (WFM) have climbed a modest 3% (excluding dividends) since I highlighted it as a stock the market loves to hate late last year, not much has changed to shift investor sentiment back in the organic grocer's favor. Most recently, Whole Foods revealed mixed quarterly results in early May, with revenue rising a weaker-than-expected 1.3% year over year, to $3.7 billion, despite a 3% drop in comparable-store sales.
Within that decline was a 2.1% drop in the number of customer transactions, and a 0.9% decline in basket size. Meanwhile, Whole Foods' net income fell 10%, to $142 million, but beat the market's low expectations by remaining flat on a per-share basis, at $0.44, thanks to aggressive share repurchases during the past year. In short, Whole Foods has continued to struggle to find top- and bottom-line growth as competition has intensified as new market entrants and traditional grocers alike fight to capture a slice of this lucrative niche.
However, Whole Foods insists that it's continuing to make progress on the nine-point turnaround plan it outlined last November, including goals to improve its cost structure, bolster its technology and marketing investments, and shift consumers' perceptions of the brand by becoming more competitive from a price standpoint. Whole Foods has also garnered praise with the opening of its first smaller-footprint 365 concept location last month. Any further success from 365 could materially increase the company's stated long-term goal of nearly tripling its number of stores in the U.S., to 1,200 locations.
As long as Whole Foods continues to make progress in its turnaround as it realizes that ambitious goal, I think patient investors willing to buy the stock now, and hold for the next two decades, will be more than happy they did.
Image source: Mastercard.
Sean Williams: If the stock market closed for the next 20 years, the company I'd be happiest to buy and hold would be payment-processing facilitator MasterCard (MA -1.19%). One of the biggest advantages MasterCard holds over the rest of the credit-services sector is that it's solely a payment processor. MasterCard, unlike Discover Financial Services and American Express, isn't a lender, meaning it has no exposure to credit delinquencies. This lack of lending exposure means it's only minimally affected by global growth slowdowns and recessions.
Opportunity is another big reason to like MasterCard. Based on commentary from MasterCard's management, some 85% of global transactions are still being conducted in cash. This would mean that, in spite of MasterCard's 12.6 billion processed transactions during the first quarter, it's really just touching the tip of the iceberg of what's possible. It has ample opportunity to grow its business in Asia, the Middle East, and Africa in the coming decades, thus providing MasterCard with a high-single-digit, or low-double-digit top-line annual growth potential.
The barrier to entry in the payment-processing business is also relatively high. On top of the costly infrastructure needed for merchants, you can essentially count the big payment processors in the U.S. on one hand. Processing market share and merchant relationships aren't built overnight -- which means that MasterCard's market share and cash flow are generally safe and predictable.
Finally, MasterCard has a rock-solid balance sheet, complete with more than $6.2 billion in cash, and nearly $2.9 billion in net cash. Operating cash flow has totaled more than $4.1 billion over the trailing 12-month period. This cash has allowed MasterCard to explore acquisition opportunities to improve its network, as well as reward its shareholders. Its forward dividend yield of 0.8% will likely grow substantially as time marches on, and it still has $2.9 billion remaining on an announced $4 billion stock-buyback program.
Without sounding too "punny," I fully expect MasterCard to charge higher over the long term.
Image source: Under Armour, Inc.
Jason Hall: Under Armour Inc. (UAA 0.92%) (UA 0.95%) stock has taken a pummeling recently, down about 30% from its all-time highs. The big reasons for the decline? It's largely due to concerns around some weakness in apparel market share in North America, but also the loss of The Sports Authority, a major athletic retailer in the U.S. that's going out of business.
There's likely some selling that's a result of valuation concerns, too. After all, Under Armour shares, which still trade for nearly 67 times last-year's earnings after the sell-off, are far from cheap. But at the same time, this kind of high-performance growth business should come at a premium price.
Under Armour has grown sales 20% or more every quarter for the past six years, and is still a small player in the global athletic-clothing business. It had less than $4 billion in sales in 2015 compared to $19.4 billion for Adidas, and $32 billion for Nike.
The best part is, Under Armour doesn't have to take gobs of market share from the industry giants to continue its growth trajectory. Yes, it will likely have to take at least some share from both Nike and Adidas to keep up the recent pace of growth, but its international presence is tiny. Last quarter international sales were up 55%; but even with that huge jump, it only accounted for 15% of total revenues.
Bottom line: The global middle class will expand by 1 billion people in the next couple of decades, and the athletic apparel and footwear industry is likely to grow substantially along with it. Under Armour is an ideal stock to own while that plays out, and now's a great time to buy.
Daniel Miller: Buying and holding for two entire decades is an investing strategy you rarely hear about these days, even though long-term investing is a wise choice. That's simply because so many industries are rapidly changing due to new technologies, which makes buying and holding difficult. To select a stock to safely hold for two decades, investors have to find a company poised to benefit from a trend that won't change anytime soon. To me, LTC Properties Inc. (LTC 0.28%) absolutely fits that bill.
LTC Properties is a REIT, or Real Estate Investment Trust, which owns or finances income-producing real estate. But it isn't the fact that it's a REIT that's enticing for investors looking at a 20-year timeline. What's great about this REIT is that it owns more than 200 assisted living, memory-care, post-acute/skilled nursing, and range-of-care properties in the healthcare industry spanning roughly 30 states.
It isn't pleasant to think about family members getting old, but the fact is that, by 2030, the population aged 75 and older is expected to jump by nearly 90% compared to 2012, and it's expected to increase from accounting for 6% of the total U.S. population to roughly 10%. In fact, national healthcare spending was $3.1 trillion in 2014, and that's expected to jump to $5.0 trillion by 2020..
For that reason, LTC Properties is poised to generate significant income from its current properties within the healthcare industry, and it'll pay you a dividend yield of 4.38% during the process.
Image source: Getty Images.
Todd Campbell: Perhaps there is no trend as likely to provide tailwinds to drugmakers as the rising prevalence of diabetes worldwide. According to the International Diabetes Federation, the number of people with diabetes will soar from 415 million today to 642 million in 2040.
The market for diabetes treatment is already big, but with a forecast suggesting a 50% increase in patients during the next couple of decades, spending on diabetes therapies is likely to be massive. If so, then diabetes market-share leader Novo Nordisk (NVO -1.43%) may be one of the best healthcare stocks to stash away in long-terml portfolios.
Unlike Eli Lilly & Co., Novo Nordisk gets the lion's share of its revenue from the sale of diabetes drugs. Diabetes accounts for three-quarters of Novo Nordisk's quarterly sales, and about a quarter of Eli Lilly's sales. Therefore, Novo Nordisk, which boasts more than 45% market share in insulin, and racked up $3.1 billion in sales from diabetes and obesity drugs in Q1, is the biggest and arguably purest-play in diabetes.
Novo Nordisk should be able to hold onto its top-tier status in the indication in the coming years, too. Management is funneling about $2 billion per year into R&D, and that commitment is already paying off with next-generation medicines. These include Victoza, a GLP-1 inhibitor that racked up sales of $678 million last quarter, and Tresiba, a new long-lasting insulin that will compete against Lantus, a drug with $6.4 billion in 2015 sales.
Overall, proven leadership in this massive indication, and a track record of innovation in diabetes treatment, makes this one of my top stock picks for long-term investors.
