Buying and holding quality stocks for long periods of time is the only strategy that's proven to produce life-changing returns on capital on a consistent basis. Even so, it can be tricky to identify which stocks can truly stand the test of time.
With this question in mind, we asked three of our contributors which stocks they recommend to buy and hold for the next 20 years. They suggested BioMarin Pharmaceutical (BMRN -2.03%), Enterprise Products Partners (EPD 0.62%), and Lockheed Martin (LMT 0.05%). Below, they discuss why they chose these particular stocks, and why investors with a long-term outlook may want to consider adding them to their portfolios right now.
Orphan drugs are here to stay
George Budwell (BioMarin Pharmaceutical): Despite the political blowback over the jaw-dropping prices of some of the newly approved medicines for rare diseases, the orphan drug market, as a whole, is on solid ground from a growth standpoint. In fact, EvaluatePharma's latest industry report has orphan drugs grabbing over 20% of the total prescription drug market by 2022. So, it's probably a good idea to add a top orphan drugmaker like BioMarin to your portfolio for the long haul.
I think BioMarin is an especially strong pick in the orphan drug space because it already has five products on the market, and could add a sixth before the end of this month. Specifically, the FDA is expected to announce its decision on BioMarin's experimental CLN2 disease drug, Brineura, by April 27. CLN2 disease is a form of the rare but deadly childhood ailment known as Batten disease, and characterized by visual problems and seizures, among other symptoms.
Although the drug's commercial opportunity is tough to nail down because of the rarity of the condition and the fact that orphan drug prices have been all over the map lately, it should add at least several hundred million to BioMarin's top line within a few short years if approved. As a prime example, some analysts are already forecasting BioMarin's top line to grow by as much as 16% next year if Brineura does get a green light from the FDA this month.
So while BioMarin isn't exactly cheap with a price-to-sales ratio of 13.34, this company is operating within one of the fastest-growing segments of the pharma industry, and it has a proven track record of bringing innovative new medicines to market.
Moving what will move the world in the future
Matt DiLallo (Enterprise Products Partners): I have been a unit holder in Enterprise Products Partners for a decade already and hope to continue holding it for at least the next 20 years. One reason I've stuck with the pipeline and processing company for so long is due to the stability of its business, which yields steady results in good times and in bad. Driving that stability is a focus on operating fee-based assets, which often deliver relatively consistent cash flow for decades. That's why the company has been able to increase its payout 59 times since going public nearly 20 years ago, including the past 50 consecutive quarters.
There's a real good chance Enterprise Products Partners keeps that streak alive for at least the next several years. Fueling that growth will be the $7.1 billion of expansion projects it currently has in the backlog, which should enter service through 2019. In addition to that, the company has several other projects under development that should keep it growing well into the early 2020s.
Enterprise Products Partners should have no shortage of opportunities to continue expanding well beyond its current pipeline. That's because global energy demand is expected to keep growing through 2040, according to the International Energy Agency. Furthermore, the IEA sees natural gas demand, in particular, growing at a healthy rate, pushing the cleaner-burning fuel past coal as the global energy champion. That bodes well for the gas-focused Enterprise, which should have ample opportunity to build and buy additional infrastructure assets to support this growth in the decades ahead. That's why this is one company I'd have no problem holding for a couple more decades.
If price were no object, I'd buy LockMart
Rich Smith (Lockheed Martin): I've said it before and I'll say it again: If you want a stock to buy and hold for the next 20 years (or the next 10, or even the next 50), look no further than Lockheed Martin.
The king of military contracting, Lockheed Martin is the largest pure-play defense contractor in the United States, bar none. Lockheed builds the world's most popular fighter jet, the world's most popular non-combat aircraft, too, and -- since the acquisition of Sikorsky and its Black Hawk line -- even the most combat helicopter.
But that's just the start of the story. Lockheed Martin is also one of two primary shipbuilders producing the U.S. Navy's line of Littoral Combat Ships, and a force to be reckoned with in laser technology. (Oh, and did I mention Lockheed Martin also builds space ships? This is the dictionary definition of a stock with a future.)
Now I admit that picking the right time to buy Lockheed Martin stock may be a little tricky. Priced north of 15 times earnings, but with a projected earnings growth rate of just 9%, the stock is not an obvious bargain today. Lockheed Martin's price-to-sales ratio, currently at 1.65, also sits significantly above its long-term average. At some point in the next few years, that ratio will have to revert to something closer to its norm, and probably through a steep decline in stock price.
Keep an eye out for when that decline arrives, however. Because that will be your cue to buy Lockheed Martin stock -- and hold it for the next 20 years.