Warren Buffett knows a thing or two about investing, so when he speaks, I listen. The Oracle of Omaha has been sharing the secrets to his success for years, and many of the best quotes on investing are attributable to him.
Here's one of my all-time favorites:
When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.
The reason I love this quote so much is that it's so simple, yet it contains a powerful investing idea. The key takeaway from the quote is this: if you own a great company, hold on to it through thick and thin. It's an easy concept to grasp, but a hard one to execute.
With that lesson in mind, we asked three of our Motley Fool healthcare contributors to share a stock they think can be owned for the long haul.
The bluest blue chip of them all
Brian Feroldi: The world's population is getting older, which means that global demand for healthcare products and services is likely to increase for decades to come. That fact should prove to be a huge tailwind to the entire healthcare sector, and one great way to play the trend is by buying shares of Johnson & Johnson (NYSE:JNJ).
Johnson & Johnson is already one of the largest and most important healthcare companies on the planet. Under J&J's umbrella are more than 250 operating companies that sell products in 60 different countries. The breadth of this company's product diversity is unmatched, which truly makes J&J one of a kind.
One reason I think that investors can learn to love this company's stock is that its business model is highly recession-resistant. That's because people can't choose when they get sick, so they will demand access to high-quality medical care no matter what kind of craziness is happening in the global economy.
To demonstrate just how stable this business is, consider this amazing fact: Johnson & Johnson has grown its dividend payment for 53 years in a row. That's an unbelievable accomplishment which very few companies can claim. Perhaps equally impressive is the fact that its adjusted operating profits have increased each year for 30 consecutive years, which boggles my mind when you consider all of the different economic conditions the company has had to deal with.
Investors have plenty of reasons to believe that the company can keep both of these streaks going for years to come. I, for one, am particularly bullish on the company's pharmaceutical division (though its consumer products and medical devices segments continue to bring in cash as well). J&J already counts 11 drugs on the market that produce more than $1 billion in annual revenue, but between now and 2019 the company could launch another 10 potential blockbusters. In addition, J&J is seeking 40 label-expansion claims on drugs that have already been approved. Combine those facts, and revenue from this division is heading in the right direction.
Johnson & Johnson is really the complete package. The company should be able to grow in good times and bad; it pays a strong dividend; and its net cash position of more than $18 billion gives it ample room to continue to make smart acquisitions.
More than just your neighborhood pharmacy
Kristine Harjes: CVS Health (NYSE:CVS) is a fantastic buy-and-hold stock that looks set up well for long-term success. You're probably more familiar with the retail-pharmacy side of CVS Health's business, but did you know two-thirds of CVS Health's revenue comes from its Pharmacy Benefit Management (PBM) business?
In its role as a PBM, CVS negotiates prices between producers and buyers of drugs. PBMs as a whole should continue to be extremely profitable, as prescription drug use is climbing amid growing pressure to keep costs down, but scale is the name of the game. In this regard, CVS is set -- it's the second-largest PBM in the country. And, impressively, it boasts 97% customer retention.
Meanwhile, CVS Health's retail pharmacy operations are also firing on all cylinders. The chain's footprint of over 9,600 stores is growing quickly, aided substantially by last year's acquisition of Target's 1672 pharmacies and 79 Target clinics. Speaking of clinics, CVS Health's MinuteClinics -- where you can quickly get basic medical attention in-store -- should continue to drive foot traffic. This will boost revenue in two ways: from the MinuteClinics themselves, and from retail sales such as that pack of cigarettes gum the customer picks up on her way out.
CVS's various business segments all look to me to be, well, healthy, making this a great buy-and-hold stock to play on favorable demographic shifts and an increase in healthcare spending.
A single-use powerhouse
Cheryl Swanson: When it comes to a forever stock, I'm a fan of boringly beautiful healthcare company Becton, Dickinson and Company (NYSE:BDX). The U.S.-based med-tech company has a 44-year history of consistent double-digit dividend growth, stable earnings, and dependable price performance. Even better, its current 1.5% yield carries a reasonably low payout ratio of 33%, giving it room for a further dividend hike in the future.
What's BD's secret? More than 60% of its products are single-use medical supplies, such as disposable needles and syringes. It is now required by law in most countries to use needles with safety features that prevent their reuse. BD harvests that high-profit market by selling premium-priced systems with such features as automatically retractable needles.
The highly sustainable and lucrative market of disposable medical supplies looks set to remain in BD's pocket for a long time; competitors simply can't cut it. You need a large and strong sales force to gain entry in this business, as well as a reputation for quality, as hospitals stick to what works. So we're talking low revenue volatility and less risk for investors.
The only real downside is that BD recently scaled a new 52-week high. There's something to be said about the strong getting stronger, but this formerly stodgy stock jumped 22% in the last year, significantly higher than the S&P 500's return of 2.7%. The leap is mostly due to BD's $12.6 billion acquisition of CareFusion, but, unfortunately, the revenue growth potential from the deal is pretty much baked in at this point.
It probably wouldn't hurt to wait for a market pullback to buy BD. But overall, this stock looks set to retain its competitive edge, which will eventually boost its overall results. BD has an innovative product pipeline and recently launched a cell sorter, the FACSMelody system, as well as a new in-vitro diagnostic panel for reproductive diseases. In sum, this company has tremendous sales predictability, consistent growth, and a strong and stable dividend, and it tends to hold up well in down markets. Forever is a long time, but dividend aristocrat BD may be as close as it gets.
Brian Feroldi has no position in any stocks mentioned. Cheryl Swanson owns shares of CVS Health and Johnson and Johnson. Kristine Harjes owns shares of Johnson and Johnson. The Motley Fool owns shares of and recommends Johnson and Johnson. The Motley Fool owns shares of Becton Dickinson. The Motley Fool recommends CVS Health. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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