When most people think of safe places to put their money, their minds leap to classic low-risk investments like Treasury bonds, or to simply stashing cash under the proverbial mattress. If you plan to hold on to that money for a long time, though, those options are going to lose the battle with inflation. If you want a safe investment for the long term that's likely to avoid losing value, your best bet is probably in the stocks of strong, stable companies with staying power.
We asked three of our contributors each to pick a stock investors could buy now and not have to worry much about all the way out to 2030. Their choices: JPMorgan Chase (JPM 2.98%), Nucor (NUE 4.73%), and IBM (IBM 2.62%).
Jordan Wathen (JPMorgan Chase): It's hard to get excited about a bank stock, but when you do, you might have something special. JPMorgan Chase needs no introduction, but the average consumer might not recognize just how dominant the bank has become under CEO Jamie Dimon.
JPMorgan leads its peers in deposit growth, credit card issuance, and payment volume, and it also takes the top spot in multiple categories in investment banking and markets. Oh, and it also takes first place in the wealth management industry for profitability; it has attracted more money over the last five years than anyone but BlackRock, the world's largest asset manager.
It's really a remarkable collection of businesses that benefit from being cogs in a larger machine. For consumers, it can be a true "financial supermarket," with everything from competitive deposit products to credit cards, car loans, and mortgages. On the commercial and corporate side, the company offers everything from merchant processing to multimillion-dollar loan products.
By 2030, the United States will certainly have navigated another recession, possibly two or three, which is never good for the banking business, or bank stocks. But over the long haul, I think the below-average historical losses in JPMorgan's loan portfolios point to a better-than-average outcome for its shareholders.
An investment as solid as steel
Tyler Crowe (Nucor): The skeleton of modern society is built with steel, and that isn't going to change much anytime soon. The challenge with investing in the steel industry is that it is an immensely capital-intensive business that goes through some pretty big up and down cycles. It also doesn't exactly help things that China currently produces more steel than the rest of the world combined, which means that cycle tends to follow the Chinese market more than anything else.
Despite this challenging industry environment, Nucor has stood out among the crowd thanks to its unique business model. It got its start as a contrarian player in the market by utilizing mini mills that produce new steel from scrap and recycled products, rather than the traditional blast furnaces that use iron ore and metallurgical coal. This innovative method has the advantage of allowing for smaller-scale operations that can be ramped up or down rather quickly, making Nucor more nimble as it responds to ups and downs in the market, and thus better able to capture market share.
On top of that, the company's employee compensation structure is tied more closely than is common to the bottom line, which incentivizes productivity on a weekly basis. This unique structure also means that its selling, general, and administrative costs are less on average, and they tend to be much more variable than those of its peers. It's little things like this that have enabled Nucor to generate strong returns on equity throughout the industry's cycles, and to raise its dividend annually for more than 40 years straight.
Unless we are able to come up with some supermaterial that has the strength of steel without the high costs of manufacturing, steel will remain a critical component in the background of our everyday lives, and Nucor is the kind of company that turns manufacturing this essential product into a high-return, dividend-paying business. That's the kind of investment I want to own till 2030 -- and beyond.
Right place, right time
Tim Brugger (IBM): If timing is in fact everything, then IBM is a stock worthy of inclusion in most any long-term portfolio. While its solid dividend yield is a nice bonus, what sets IBM apart from other alternatives is an ongoing transformation that's refocusing the company on fast-growing markets.
IBM's relatively flat year-over-year revenue might concern some investors. However, total sales should take a backseat -- at least for the time being -- to how IBM's strategic imperatives are performing. CEO Ginni Rometty began the process of transitioning away from the legacy hardware and associated businesses a few years ago. The objective since then has been to lead the shift to the cloud, data security, and analytics, along with mobile-related markets, and IBM is doing just that.
Last year's results speak volumes about Big Blue's successful transformation. Yes, total revenue declined 2% in 2016 to $79.9 billion. But IBM's strategic imperative sales jumped a combined 13% to $32.2 billion, led by a whopping 35% improvement in cloud-related sales to $13.7 billion. Key strategic imperatives revenue now makes up 41% of total sales, and that percentage continues to climb with each passing quarter.
In addition to IBM's focus on what many pundits expect to be some of the fastest-growing market opportunities around, at just 12 times future earnings, it's ridiculously inexpensive relative to its peers. Not only does IBM's current valuation equate to a bargain, it also limits its downside risk for long-term investors. Toss in a 3.2% dividend yield, and IBM is an ideal stock for investors with time on their side.