Here at the Motley Fool, we're convinced the best way to predictably create wealth is to buy shares of solid businesses and hold them over the long term -- and the longer, the better. But where should you look to find these great businesses?
To help get you started, we asked three Motley Fool contributors for a stock they not only own, but also have no intention of selling. They chose Celgene (NASDAQ:CELG), Markel (NYSE:MKL), and Caretrust REIT (NASDAQ:CTRE). Read on to find out why.
Big reasons to own this big cap biotech
Todd Campbell: One stock I have no plans on selling is Celgene Corp., the biotech giant behind the $6.8 billion multiple myeloma juggernaut Revlimid.
Revlimid is commonly used as a second-line therapy in multiple myeloma, and it's quickly gaining ground as a first-line treatment following a FDA label expansion last year. Since Revlimid's dominant position in the indication is strengthening, and Celgene has patent protection on the drug until 2024 in Europe and 2027 in the U.S., there's plenty of reason to think it's going to be a big driver of this company's profitability for many more years.
Celgene also markets the pancreatic cancer drug Abraxane and the third-line multiple myeloma drug Pomalyst. Abraxane is selling at a $1 billion annualized clip, and Pomalyst sales are clocking in at an annualized $1.3 billion. Additionally, Celgene launched its first auto-immune disease drug, Otezla, in 2015, and demand for the oral psoriasis drug is growing rapidly. Last quarter, Otezla's sales were $242 million, up 170% year over year. Celgene has patent protection on Abraxane, Pomalyst, and Otezla in the U.S. that stretches to the mid to late 2020s.
Celgene's product portfolio isn't the only reason I'm a fan of its shares. Celgene also boasts one of biotech's best balance sheets ($6.4 billion in cash and investments) and top-notch management (CEO Alles has been with the company since before Revlimid's launch in 2025). Further, management has issued guidance calling for a doubling in EPS by 2021. As a result, this company is one of my favorite "forever" stocks.
If the thesis holds, I'll never sell Caretrust
Jason Hall: I'm the epitome of the long-term investor, rarely selling any of the stocks I own. This is because there's overwhelming evidence that most investors do worse by doing too much -- giving away money in trading fees and taxes on gains, as well as missing out on long-term growth by moving on too quickly. I think in the long run, my investing will be much more successful by finding and buying companies I want to own forever, ones that have businesses built to last.
One company that exemplifies this approach is Caretrust REIT, a small healthcare and senior housing properties owner. Here's what makes Caretrust a "never sell" stock for me:
- It's positioned for decades of growth as the Baby Boomer generation ages and increases the need for senior and healthcare housing.
- Its small size allows it to pursue smaller properties that larger competitors may completely ignore.
- Its legacy as a spin-out of The Ensign Group, including a co-founder as CEO, makes it an expert in the field.
- As a REIT, this is an ideal long-term income growth stock.
So far, the thesis -- largely that its management should be able to find plenty of opportunities to grow per-share returns by acquiring small facilities -- has played out well since the spinoff. Earnings per share are up 52% since Caretrust became a stand-alone company, a fact that's easy to miss if you only look at the share price.
Yes, there are risks, particularly interest rate pressure that makes it difficult to find cheap capital to fund acquisitions, and the risk that the small-acquisition strategy won't always work so well. But with tens of millions of Baby Boomers growing older and a shortage of the kinds of facilities Caretrust owns on the horizon, this is a stock I count on generating huge dividend growth over the next couple decades. If it works out, I'll certainly never sell Caretrust.
This stock has "forever" written all over it
Steve Symington: I can't say with certainty that I'll never sell any given stock I own, as there are many perfectly valid personal finance reasons to sell along the way. But if there's one company I'm most confident will be part of my personal portfolio indefinitely, it's Markel.
Markel is often described as a "mini-Berkshire Hathaway" for its status as a specialty insurer and financial holding company, and for its ability to replicate Warren Buffett's proven approach to creating shareholder value over the long term. At the helm as Chief Investment Officer and co-CEO is world-renowned value investor Tom Gayner, who similarly expresses his "hope to be able to buy a stock and never sell it."
Markel's latest quarter demonstrated broad strength that, more than anything, is representative of its steady performance. Net investment income climbed a modest 4.9%, to just under $95 million, thanks primarily to contributions from Markel's fixed-maturity portfolio. Underwriting performance was strong, with a consolidated combined ratio of 93%, which means Markel earned $7 for every $100 in premiums it wrote -- and this despite industrywide large loss events that occurred during the quarter and hurt other insurers.
Over at Markel's non-insurance businesses, which operate under the Markel Ventures moniker, revenue climbed 24% year over year, to $298 million, and resulted in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $51 million. The latter figure nearly quadrupled over the same year-ago period, but it's worth noting that last year's second quarter included significant expenses related to Markel Ventures' acquisition of auto transport trailer maker Cottrell in 2014.
All told, through the first half of the year, Markel has increased its book value per share 7.5%, to $603.13, building on the 11% compound annual growth in book value per share it achieved over the five-year period ending Dec. 31, 2015. And this is particularly important: Markel management's cash and bonus compensation is directly tied to the company's five-year rolling average growth in book value per share, ensuring their interests remain aligned with those of long-term shareholders.
In the end, barring an unlikely fundamental shift in the way Markel does business, I think Markel stock is a perfect place for any investor looking for a permanent home to put their money to work.
Jason Hall owns shares of Berkshire Hathaway (B shares), CareTrust REIT, and Markel. Steve Symington owns shares of Markel. Todd Campbell owns shares of Celgene. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Celgene, and Markel. The Motley Fool has the following options: short October 2016 $95 puts on Celgene. 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.