The "simple" method of buying and holding a stock really isn't all that simple. Some companies might post stable growth for years, but suddenly be crushed by technological shifts or new competitors.
Therefore, stocks that you can buy and hold "forever" should have well-diversified businesses, wide competitive moats, and solid plans for future growth. Let's take a look at three companies that clearly fit those criteria -- Amazon (NASDAQ:AMZN), Disney (NYSE:DIS), and Facebook (NASDAQ:FB).
Amazon is one of my top "forever" holdings for three reasons. First, it owns the most visited e-commerce website in the world. Second, its "prisoner-taking" Prime ecosystem continues expanding with new features and perks that brick-and-mortar rivals are struggling to match. Last June, research firm CIRP estimated that Amazon's Prime member base in the U.S. had grown 43% annually to 63 million, and that Prime shoppers spend an average of $1,200 per year -- compared to $500 for non-members.
Lastly, AWS (Amazon Web Services) is the biggest cloud platform in the world, and its higher operating margin (26% last quarter) supports the company's other lower margin and loss-leading efforts. AWS has an annual run rate of $14 billion, and its revenue and operating profit respectively rose 47% and 60% annually last quarter.
The combination of the growing Prime ecosystem, connected hardware devices like the Kindle, Fire TV, and Echo speakers, and the AWS backbone make Amazon the 800-pound gorilla in both retail and cloud computing -- and I believe that it can continue dominating both markets (and other adjacent ones) for decades to come.
If you believe that Disney's theme parks and movie franchises will still be making money hand over fist decades from now, then the House of Mouse is the ideal stock to hold forever. In theme parks and resorts, Disney's footprint continues to grow with its new Shanghai Disney Resort, new extensions (like Star Wars Land) for its existing parks, and a growing fleet of cruise ships. In movies, Disney continues generating billions of dollars in box office revenues per year with its carefully crafted Marvel, Star Wars, and Pixar franchises -- which are all built to last for decades.
Disney's only soft spot is its media business, which has been hurt by consumers "cutting the cord" in favor of streaming-only platforms. A key concern is that ESPN, the crown jewel of the business, has been losing subscribers, disproving the notion that live sports were insulated from cord cutters. However, Disney has been expanding its core cable brands, like ESPN, away from traditional pay TV platforms and toward websites, apps, and stand-alone streaming platforms.
Over time, I believe that the media business' dependence on pay TV platforms will decline, and that the weight of its theme park and film businesses will increase. That gradual evolution should make Disney a safe stock to own for generations to come.
Facebook finished last quarter with 1.86 billion monthly active users -- about a quarter of the entire world population. That's a moat that's nearly impossible for any competitor to cross, and makes the company the 800-pound gorilla of social networking and a formidable rival to Alphabet's Google in the internet advertising space.
In addition to its flagship site, Facebook owns Instagram, which hit 600 million active users last December, and WhatsApp, which hit 1.2 billion active users last month. It's also been turning Messenger, which has over a billion users, into a gigantic platform for reaching businesses, making mobile payments, and playing games.
Lastly, Facebook owns Oculus VR, the maker of the seminal Rift headset. Facebook also launched its own VR platform with Oculus Home, a VR launcher for Rift and Gear VR headsets. Users can already chat and play games with each other in that VR environment, so it's likely only a matter of time before users will visit each other's Facebook or Instagram profiles in a VR environment. Facebook's growth will inevitably slow down over the next few decades, but it will likely keep generating billions of dollars in advertising revenue as it expands its ecosystem into adjacent markets.
Think in decades, not quarters...
Many analysts are currently focused on Amazon, Disney, and Facebook's near-term challenges. They're worried about Amazon's rising logistics expenses and the perceived slowdown in AWS' top line growth. They think that Disney's streaming efforts might not offset its losses in pay TV subscribers, and they probably think Facebook is running out of room to grow.
But as a long-term investor, you should ask yourself if Amazon, Disney, and Facebook will continue growing over the next few decades. If so, then you should consider buying and holding these stocks for several decades instead of a few quarters.