There's a lot of evidence that investors who focus on the long term, buying and holding stocks for many years, have the best shot at getting the best returns. We decided to take this concept to the extreme and asked four of our contributors to write about a stock they would never sell. They offered up an interesting mix of companies, including Mastercard Inc (NYSE: MA), iRobot Corporation (NASDAQ:IRBT), Allergan plc (NYSE:AGN), and Waste Management, Inc. (NYSE:WM).
These companies are very different from one another, but each offers a mix of durable advantages and long-term growth prospects. Does one of them belong in your "never sell" portfolio? Keep reading to find out.
A key player in a massive, long-term trend
Jason Hall: Thinking as long term as possible is at the heart of how I invest, and MasterCard may represent this better than any other stock I own because the company is positioned to profit from two converging trends that are set to have huge impacts on global electronic payments.
According to a recent Pew Trusts article, the global middle class has around 3 billion members today -- up about 1 billion from only a decade before and generating about two-thirds of the world's consumer spending. Some estimates are that the global middle class could reach 4 billion as soon as 2021 -- only five years away -- making it more than half the world's population. By 2030, the global middle class could easily be 5 billion strong.
At the same time, technology is rapidly becoming more pervasive around the world, and few markets are set to benefit from this as much as electronic payments. As much as the card swipe (and increasingly, mobile payments) is commonplace in developed economies, they still make up a bare fraction of global financial transactions.
MasterCard is as well-positioned to benefit from these two massive trends as any company out there, as a global leader in an industry set to expand enormously in coming decades. That makes MasterCard an ideal "never sell" stock.
Clean up with this robot maker
Steve Symington: I could never blindly commit to owning any stock forever. After all, after I buy shares, there's plenty of homework required along the way to ensure my original thesis holds as the business -- and the world around it -- changes.
But as it stands, one stock I wouldn't mind owning indefinitely (and have already owned for years) is iRobot Corporation, a home robot specialist best known for its popular Roomba robotic vacuums.
Of course, one obvious worry every shareholder should have is that of diversification. Even before iRobot divested its Defense & Security segment earlier this year to hone its focus on the more predictable, higher-growth home robot market, for example, the vast majority of its revenue came from the Roomba line. But as evidenced by its better-than-expected quarterly report two weeks ago -- which sent the stock to fresh all-time highs -- Roomba is still effectively driving growth as iRobot not only introduces innovative new features like cloud connectivity, mobile app controls, and smarter navigation technology, but also expands its global presence and increases the roughly 15% global market share commanded by robotic vacuums in the global vacuum cleaner market.
Outside of the Roomba, iRobot's affordable new Braava jet floor mopping robot is selling exceptionally well in overseas markets like Japan and China, where households predominantly have hardwood floors. And though iRobot already has a presence outside of the home, namely with its Mirra pool cleaning and Looj gutter cleaning robots, the company has also confirmed that it's in the early stages of developing a novel robotic lawn mowing solution, the introduction of which would unlock a multibillion-dollar market opportunity for the company.
Considering iRobot's entire market capitalization as of this writing stands at just under $1.4 billion, I'll happily hold its stock as long as it takes to continue to watch its growth story unfold.
Despite the market's wrath, I'm sticking by this top pharma stock
George Budwell: Because of the political controversy surrounding drug prices in the U.S., its failed merger attempt with Pfizer, and disappointing third-quarter results, Allergan's shares have fallen off the map this year:
Even so, I have no plans to sell this top pharma stock. In fact, I am using this extended period of weakness to add more shares because this stock looks to be grossly undervalued.
Turning to the specifics, Allergan's branded pharma portfolio sports several drugs with double-digit growth rates at the moment. In the third quarter, for example, sales of eye drop medication Restasis rose by 14% to $356.4 million, and the drugmaker's flagship cosmetic product, Botox, also saw its sales rise by 10% to $174.5 million, compared to the same period a year ago. The best part is that these kinds of stellar growth rates are fairly standard for Allergan's branded pharma business across the board.
Beyond its high-growth branded drug business, Allergan is also deeply committed to its shareholder rewards program. According to its Q3 earnings release, for instance, the drugmaker plans to plow an additional $10 billion into its accelerated share repurchase program, and initiate a quarterly dividend of $0.70 per share starting in the first quarter of 2017.
So, in light of Allergan's outstanding branded drug business and rich shareholder rewards, I'm more than happy to sit tight and simply let the moody market run its course.
Hardly worth throwing away
Tyler Crowe: I'm awfully hard-pressed to find a reason that would make me want to sell my shares of Waste Management. When it comes to competitive advantages, Waste Management has them in spades. The industry is highly regulated, capital-intensive, geographically specific (I mean, what are the chances of multiple landfills in a single town?), and serves a basic need that won't likely be disrupted by technology anytime soon.
Waste Management takes all of those advantages and puts them in a tightly run ship that generates fantastic returns on capital for what is a relatively low-margin, low-growth industry. It also helps that management uses the cash generated from its high-return business to buy back stock and reward investors with a steadily growing dividend that yields a respectable 2.5%.
Perhaps if Wall Street were to lose its mind and push Waste Management's valuation into the stratosphere, I might consider selling this stock. Based on where it trades today, though, I'm more than happy to sit on this position while dividend checks come in and management increases my slice of the pie by retiring shares.
George Budwell owns shares of Allergan and Pfizer. Jason Hall owns shares of MasterCard and Waste Management. Steve Symington owns shares of iRobot. Tyler Crowe owns shares of iRobot and Waste Management. The Motley Fool owns shares of and recommends iRobot and MasterCard. The Motley Fool owns shares of Waste Management. Try any of our Foolish newsletter services free for 30 days.