The easiest and surest way to generate life-changing returns on capital is by buying high-quality stocks and holding them for exceedingly long periods of time (think 10-plus years). Nevertheless, it's not always easy to identify stocks that can produce gains that are sustainable over the long term.
So, to help investors separate the wheat from the chaff, we asked our Foolish contributors which stocks they thought are worth owning until at least 2030. These three healthcare specialists recommended Medtronic (NYSE:MDT), Johnson & Johnson (NYSE:JNJ), and Intuitive Surgical (NASDAQ:ISRG). Read on to find out why.
A medical device company built to last
George Budwell (Medtronic): I think the medical device titan Medtronic is worth buying and holding for the next decade or so for four rock-solid reasons.
First, the medical device industry as a whole is forecast to grow by a sizable margin over the next 30-plus years due to the ever-growing global population, better access to modern healthcare in emerging markets, and the fact that the fastest-growing segment of the population is composed of individuals aged 60 or older. Given Medtronic's size and immense resources, the company is in great position to take advantage of these favorable headwinds moving forward.
Next up, Medtronic has been busy reshaping itself into far a more efficient company through literally dozens of acquisitions in the past few years. Its 2014 acquisition of Covidien, for instance, is set to produce at least $850 million in cost-saving synergies by fiscal year 2018. That's a nice chunk of change that can now go toward other value-creating activities like share buybacks, additional acquisitions, or simply supporting the company's rich dividend program.
Speaking of which, the third reason Medtronic is an outstanding long-term buy is its 39-year history of consecutive dividend increases that's earned it the coveted status of Dividend Aristocrat. While the company's 74% payout ratio for its total shareholders rewards in the latest quarter is a little on the high side, its rapidly growing free cash flows and strong mid-single-digit top-line growth should provide more than enough firepower to support future hikes to the dividend in the years to come.
Last but certainly not least, Medtronic has multiple near-term growth catalysts and a deep clinical pipeline that should create tremendous value for shareholders over the next decade and beyond. As a prime example, the newly approved MiniMed 670G insulin pump is expected to help drive double-digit sales growth within the company's diabetes segment following its launch later this year.
The bottom line is that Medtronic has all the necessary ingredients in place to produce healthy returns on capital over the long term.
Brands, drugs, and devices
Cory Renauer (Johnson & Johnson): If I had to vote for the stock most likely to remain in my retirement portfolio until 2030 and beyond, this company's diverse yet complementary revenue streams make it a clear winner. Even if you're entirely new to healthcare investing, you're probably familiar with its consumer brands that date back to the 19th century, like Baby Powder and Listerine.
Bolstered by more recent brands including Aveeno and Neutrogena, 2016 consumer segment sales came in 4.3% higher, if you exclude negative effects of divestitures and currency exchange rates. With similar adjustments, its medical device segment also marched ahead about 3.8% last year.
Although medical device and consumer sales still comprised a slight majority of the $71.9 billion in total revenue Johnson & Johnson reported last year, it's the pharmaceutical segment driving growth for the world's largest healthcare company. Worldwide adjusted revenue in this segment grew 11.5% in 2016. With perhaps 10 drugs in development that could go on to generate over $1 billion in annual sales, this segment has what takes to keep moving the needle in the right direction.
Past performance doesn't guarantee future results, but I don't know of any companies with a track record more appealing to long-term investors. Johnson & Johnson has managed to increase adjusted earnings for 32 consecutive years. For those of you that enjoy steady dividend payments, only a handful of companies can top its 54-year streak of payment increases. Accomplishments like these make this an easy stock to hang on to for the long haul.
A robot revolution that's already arrived
Keith Speights (Intuitive Surgical): I'm not too worried that robots will rule the world in 2030. However, I think robots will almost certainly be much more prominent in assisting with surgeries. Actually, they already are in many cases -- thanks to Intuitive Surgical.
The company launched its first robotic surgical system in 1999. Since then, Intuitive Surgical has rolled out three other generations of the da Vinci system. Adoption of the company's technology has increased through the years so much that last year around 753,000 surgical procedures were done using da Vinci.
I think Intuitive Surgical is a pretty safe bet to survive and thrive through 2030 and beyond for several reasons. Recurring revenue accounts for 71% of total revenue. That means the company doesn't have to sell too many new systems to grow. Intuitive Surgical should be able to grow, though, as it expands more internationally and supports additional types of surgical operations.
There aren't any major competitors that threaten Intuitive Surgical right now, although the landscape is changing. However, the company's huge first-mover advantage combined with its continued focus on research and development should enable Intuitive Surgical to extend its lead role in the medical robot revolution for a long time to come.
Cory Renauer owns shares of Johnson and Johnson and Medtronic. George Budwell has no position in any stocks mentioned. Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Intuitive Surgical and Johnson and Johnson. The Motley Fool owns shares of Medtronic. The Motley Fool has a disclosure policy.