Please ensure Javascript is enabled for purposes of website accessibility

3 Top Stocks You Can Buy and Hold Forever

By Tyler Crowe - Updated Jan 19, 2017 at 9:03AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Want a stock you can hold in a portfolio that will be relevant when your grandkids are investing? Take a look at Waste Management, Berkshire Hathaway, and Canadian National Railway.

Finding the best stocks to buy and hold for the long term is difficult. But there’s a simple attribute to look for when investing in companies for a long time period: Search for businesses that will be tough to disrupt. Waste Management (WM 0.56%), Berkshire Hathaway (BRK.B 0.42%), and Canadian National Railway (CNI -0.69%) are three such businesses.

Here's a look at why these three have the traits you want in a company that will last forever. 

Image source: Getty Images.

An investment you don't want to throw away

A lot can be said for investing in those compulsory things we do everyday and put little thought into. One place where this is on full display is trash. We throw things away, and for the most part, they are taken care of without us really noticing other than having to pick up our empty bins once a week. In many cases, the company doing that work is Waste Management, and what it does behind the scenes of that seemingly innocuous act of throwing something away is what makes the company a compelling investment. 

Image source: Waste Management corporate website.

It's not easy running a major waste handling business. Trying to get all the necessary permits to open a new landfill can be extremely challenging, so those companies with existing landfills are already at an advantage. Another is the fact that owning and operating a fleet of collection vehicles is capital-intensive and has high operational costs. These things matter because it means the barriers to entry in this business are enormous, which gives Waste Management a major advantage when it comes to pricing power. 

On top of the inherent benefits of the waste handling business, Waste Management stands out among its peers because of its focus on costs and generating returns for investors. Many might see the use of methane gas produced in its landfills to fuel its waste collection vehicles as a PR stunt. In reality, it helps to offset one of the business's largest costs: Fuel. It's innovative thinking like this that has led Waste Management to be the top dog in terms of returns on capital employed in the waste industry.

WM Return on Capital Employed (TTM) Chart

WM Return on Capital Employed (TTM) data by YCharts.

Waste and how we deal with it is going to be a difficult industry to disrupt. So, if you're looking for an investment that will last a lifetime, you'll be hard-pressed to find one better suited than Waste Management. 

Berkshire beyond Buffett

Investors immediately associate Berkshire Hathaway with Warren Buffett, and rightly so. Buffett's investing savvy is pretty much why Berkshire Hathaway is now a $412 billion conglomerate with fully owned subsidiaries that touch just about every industry out there. It also has an investment portfolio of publicly traded companies that's probably one of the most carefully analyzed group of companies on the market. 

Image source: The Motley Fool.

So, for many investors, investing in Berkshire Hathaway is a vote of confidence in Buffett to make the correct capital allocation decisions. But what about when Buffett is no longer around to make those decisions? That likely has investors wondering about the next phase of Berkshire Hathaway's life as a business. Based on the way Buffett has constructed this conglomerate, though, investors should have confidence in the company's future. 

One thing unique about Buffett's management style is that he has a very hands-off approach when it comes to the day-to-day operations of the businesses underneath the Berkshire umbrella. That means the companies within Berkshire have the ability to stand on their own, and they will likely continue to generate strong returns -- the very reason Buffett bought the companies in the first place. In fact, earnings for the underlying businesses owned by Berkshire Hathaway excluding investment income from its insurance float and direct investment gains -- the two segments that involve the most capital allocation decisions from Buffett -- generated more than 50% of the conglomerate's earnings in 2015, and that's expected to grow after the acquisition of manufacturer Precision Castparts. 

Buffett has long espoused the idea of investing in great businesses that an idiot can run. With the suite of businesses under Berkshire Hathaway acting as a strong earnings engine, he has built the very kind of business he looked to buy. Berkshire should remain a company that can investors can hold for a long time after Warren Buffett has left the company. 

A hard-to-disrupt business and a shareholder-friendly management team

When it comes to moving goods, just about every other mode of transportation has a long ways to go to catch up to railroads in terms of cost efficiency. The revenue per ton mile of goods moved -- the best apples-to-apples metric we can use for comparing transportation methods -- has railroads as the most cost-effective means for transporting goods, especially when it comes to heavier bulk commodities. So, as long as we need commodities like fertilizer, minerals, steel, and myriad other products, rail is going play a critical role in moving goods.

Image source: Canadian National Railway corporate website.

That is the foundation for an investment in railroads, but there are two reasons Canadian National Railway is a compelling investment among all of the other railroad companies -- Berkshire Hathaway's Burlington Northern Santa Fe included.

The first is that Canadian National Rail's network is the only class 1 rail network that has terminals on the East, West, and U.S. Gulf Coasts of North America, making it a crucial artery for moving goods across the U.S. and Canada. It also helps that the geographic footprint of its rail network doesn't have much exposure to coal. This is becoming a key differentiator as coal production declines, and with it, coal freight volumes.

On top of its geographic benefits, Canadian National has the best operating ratio -- an industry metric similar to gross margin -- among North American railroads. The lower the operating ratio, the more efficient the company is at converting revenue to profits.

Company Operating Ratio
Canadian National Railway 58.1%
Canadian Pacific 61%
U.S. Based Rail companies (industry avg.) 67.1%

Data source: Canadian National Railway investor presentation.

With an advantage over competitors in terms of geographic footprint and a more efficient operation, Canadian National produces great returns and rewards investors with a robust share buyback program and a dividend. Its dividend yield that won't wow anyone, but it has grown at a double-digit rate for years. 

CNI Return on Equity (TTM) Chart

CNI Return on Equity (TTM) data by YCharts.

These are the kinds of traits you want in a buy-and-hold-forever kind of stock, so investors with a long-term investing time horizon should add Canadian National Rail to their lists.

Tyler Crowe owns shares of Berkshire Hathaway (B shares) and Waste Management. You can follow him at or on Twitter @TylerCroweFool.

The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Canadian National Railway. The Motley Fool owns shares of Waste Management. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$302.82 (0.42%) $1.27
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$455,170.00 (0.55%) $2,472.75
Waste Management, Inc. Stock Quote
Waste Management, Inc.
$172.70 (0.56%) $0.96
Canadian National Railway Company Stock Quote
Canadian National Railway Company
$127.32 (-0.69%) $0.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.