When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.
These words, written by Warren Buffett in his 1998 letter to shareholders of Berkshire Hathway, have become a mantra for many who invest Foolishly. I've personally followed this advice for years, and my portfolio has flourished as a result.
So, what stocks do I currently own that are worthy of holding "forever"? I think Mastercard (NYSE:MA), FactSet Research Systems (NYSE:FDS), and Tesla (NASDAQ:TSLA) are three excellent candidates. Here's why.
Still an early growth story
Successful long-term investing is all about buying companies with durable business models and significant growth potential. Those traits perfectly describe payment processing giant Mastercard, which is why I've long considered this company to be a core holding.
Mastercard's vast network helps merchants, consumers, and financial institutions to facilitate electronic payments. Since making digital payments is traceable, convenient, secure, and offers rewards, consumers in developed markets have accepted them with open arms. In exchange for its services, Mastercard pockets a small fee for each successful transaction. With more than 2.3 billion cards in circulation, consumers swipe a card with a Mastercard logo more than 56 billion times each year. That allows those small fees to add up quickly, which is how Mastercard pulled in more than $10 billion in total revenue last year.
While Mastercard's business model is a thing of beauty, the reason I believe this company is a "hold forever" stock is that roughly 85% of transactions worldwide still occur with cash or check. With the global middle class expected to rise in the coming decades, I think this figure will continuously shift in favor of electronic payments. That hints that Mastercard's growth story is still just getting warmed up, which is why I plan on hanging around for the long haul.
Giving Wall Street an edge
Every investor knows that you can't make smart decisions without access to data. Banks, hedge funds, insurance providers, mutual funds, and others all feel the same way and are willing to pay a premium to get their hands on high-quality information. That fact keeps FactSet Research Systems' services in demand.
FactSet is a data aggregator that collects information from hundreds of sources and then sells access to this information on a subscription basis. The company counts a wide range of financial companies as customers, and once they start using FactSet's system, they tend to become heavily reliant on the data. In turn, they willing sign long-term contracts with FactSet that feature annual price increases.
FactSet's results show that customers continue to highly value the company's services. Last quarter, FactSet's customer retention rate was 95%, which speaks volumes about the company's product offering.
What's wonderful about this business is that the company's financial statements are highly predictable. In fact, FactSet has reported 36 consecutive years of revenue growth and 20 straight years of profit growth. Those are remarkable figures.
Looking ahead, investors can bank on the company using acquisitions, price increases, and international expansion to drive its top line higher. When combined with expense control and share buybacks, FactSet should be able to leverage that growth into even bigger gains on the bottom line. This rock-solid business model is why I plan on counting myself as a shareholder for decades to come.
Driving a sustainable future
There's no doubt that Tesla is the most controversial name on this list. The upstart automaker has yet to produce a full-year GAAP profit, has a habit of missing its own guidance, and has had to delay several product launches due to production challenges. With shares trading at more than 6 times sales, I'm sure many investors would likely consider Tesla to be a more attractive short candidate than long.
I get all of that criticism, but given the company's unbelievably ambitious goals, I still think the sky is the limit for this company. After all, Tesla has a real shot at disrupting the auto, utility, roofing, and energy storage sectors all once. The opportunity is so big that there are literally trillions of dollars in sales up for grabs.
What could that opportunity mean for investors? Here's a quote from CEO Elon Musk in June of last year that spells out what he believes is possible:
I think as a combined automotive and power storage and power generation company; I think the potential is there for Tesla to be a $1 trillion company, market cap company.
Yes, he said a $1 trillion company. For perspective, Tesla's current market cap is about $43 billion. If Elon's prediction comes true, then Tesla could literally be a 20-bagger for investors, even at today's lofty levels.
Now, I understand Musk is famous for making wild predictions, but a small part of me can't help but think he might actually have a shot at pulling this off. After all, even the most bearish of investors has to admit that what this company has achieved thus far is nothing short of amazing. As long as Musk is calling the shots, I wouldn't bet against this company reaching its goals.
In total, a small part of me believes Telsa could truly be a once-in-a-lifetime investment opportunity. That's why I plan on holding onto my shares indefinitely, for better or worse.