Lockheed Martin (LMT -0.70%), IBM (IBM -0.65%), and Amazon.com (AMZN -2.39%) make the short list of top stocks with the kind of staying power necessary to reward investors for 50 years -- or longer! These big companies are industry titans, and they've rewarded investors handsomely in the past. Here's how they can keep delivering long-haul returns in the future.
The biggest, longest revenue stream you've ever heard of
Rich Smith (Lockheed Martin): It's a truism on Wall Street that investors love "visibility." When you know in advance how much revenue a company is expected to take in over the next year, the next five years, and the next decade -- and when you can estimate how much profit the company will earn on that revenue -- it makes it a whole lot easier to figure out how much the stock is worth, and whether it is safe to buy.
The problem is that for most stocks, it's really hard to figure out how well business will go even one year into the future, much less five years. Ten years? That's practically unheard of. And yet, I happen to know of one company offering revenue visibility for the next 50 years.
Its name is Lockheed Martin.
Nearly 10 years ago, I introduced investors to the incredible profit potential of Lockheed Martin's F-35 Lightning II fighter jet. According to then-Chairman of the Joint Chiefs of Staff Admiral Mike Mullen, Lockheed's F-35 was destined to be "the last manned fighter" that the U.S. would ever build. What's more, the F-35 was designed to remain in service through 2065 -- nearly 50 years into today's future.
Over that time, between money made building the planes and selling them to the U.S. military and its allies around the world, money made servicing the plane, and money made upgrading the F-35 to keep it modern and relevant in a changing world, analysts estimate that Lockheed Martin's F-35 will generate well in excess of $1 trillion in revenue for Lockheed. That's roughly $20 billion per year, or half the revenue Lockheed Martin booked as recently as 2015. And if -- as Adm. Mullen predicted -- the U.S. will never build another fighter to compete with Lockheed's F-35 franchise, then this revenue stream should remain secure and unassailable during that entire 50-year time frame.
Will the prediction come true? Maybe. Maybe not. One thing's for sure, though: The longer Lockheed Martin builds F-35 fighter jets without competition -- be that 50 years, 40, or even just 10 -- the more Lockheed's competitors' skill in building competing fighter jets will wither, and the more dominant Lockheed Martin will become.
The best is yet to come
Tim Brugger (IBM): Shareholders are finally reaping rewards for their patience. IBM stock has soared 50% in the past 12 months, including 9% this year. The reason for investor optimism is IBM's delivering on its strategic imperatives. Strategic imperatives are a group of segments focused on fast-growing markets, including the cloud, big data analytics, cognitive computing, mobile, and security.
Collectively, strategic imperatives are performing ahead of CEO Ginni Rometty's goal of reaching 40% of IBM's total sales by 2018. IBM ended 2016 with $32.8 billion from the all-important units, equal to 41% of its $79.9 billion in total revenue.
But it's not what IBM has accomplished in the past year that warrants its spot on a list of stocks to buy and hold. The markets IBM's strategic imperatives target -- as big as they already are -- have barely scratched the surface of what the opportunities represent.
The public cloud alone is expected to reach an estimated $195 billion in 2020, and IBM is already near the top of the provider heap, given its $13.7 billion in sales last year -- a 35% improvement over 2015. Big data and security are also expected to soar as the world becomes digitized.
IBM's long-term ace in the hole could prove to be its Watson artificial intelligence (AI) computing wonder. With each passing day, IBM's Watson unit seems to announce yet another major "win," be it in healthcare, data security, or even tax preparation. As great as the past year has been for IBM, the best is yet to come.
This big company is only getting started
Todd Campbell (Amazon.com): I bet that with all the online shopping you did this past winter, you think that Amazon.com has already reached its full potential, but the reality is this e-commerce giant still has plenty of room left to grow.
Amazon.com is already a go-to source for millions of online shoppers, but according to Census Bureau data, e-commerce sales still only represent a tiny 8.4% of all retail sales. That's pretty amazing, especially when we consider that breakneck growth has already turned Amazon.com into a household name, with $136 billion in revenue last year.
What might be even more impressive, however, is that while it gets increasingly difficult to deliver double-digit growth rates as companies get bigger, Amazon.com's full-year sales still grew a whopping 27% last year. Importantly, surging sales are getting leveraged against fixed costs, and as a result, Amazon.com's profitability is growing even more quickly. In 2016, management reported operating income of $4.2 billion, up from $2.2 billion in 2015.
Amazon.com's CEO, Jeff Bezos (who is perhaps one of the best CEOs in America), isn't about to take his foot off the growth gas pedal, either. He continues to innovate, and those innovations are paying off. The company's Prime service is boosting return shoppers with free two-day shipping, and Prime Now, which delivers items in the span of a couple hours, has become available in many of the country's biggest cities. Prime has also become an important video and music content provider for consumers, and Amazon.com's investments in e-readers and -- more recently -- electronic virtual assistants (Alexa) are creating relationships with consumers that are increasingly sticky.
Overall, if you're considering growth stocks to buy for long-haul portfolios, I think Amazon.com deserves to be right near the top of your list.