The data doesn't lie: Buying and holding high-quality stocks over the long haul is the most tried-and-true way to make money in the stock market. According to J.P. Morgan Asset Management, holding the S&P 500 over a 20-year period between Jan. 3, 1996, and Dec. 31, 2015, would have resulted in a healthy gain of 555%. Mind you, this is through both the dot-com bubble and the Great Recession.
So what stocks should you consider buying and holding over the long haul? According to three contributors we asked, biotech blue chip Celgene (CELG), footwear and accessories kingpin Nike (NKE 2.67%), and payment processing giant Visa (V 0.30%) are the names to know.
The premier growth name in biotech
Sean Williams (Celgene): Who says you can't buy growth stocks and hold onto them over the long-term? Not this Fool! That's why I'd suggest patient investors consider a biotech blue chip like Celgene.
In 2016, Celgene wound up growing its net product sales by a whopping 22% to $11.2 billion, and its double-digit growth rate shows little signs of slowing. The bulk of this growth continues to come from multiple myeloma blockbuster Revlimid, which is among the best-selling drugs in the world. Sales of Revlimid grew by 20% year over year to $7 billion, and the company is forecasting that sales of the drug will hit $8 billion to $8.3 billion in 2017, marking an expected growth rate of up to 17%. An increase in multiple myeloma diagnoses, longer duration of use, substantial market share, and excellent pricing power have all played a role in Revlimid's growth.
But what's really important about Celgene's growth story is that Revlimid's growth runway is still nearly a decade long. In December 2015, Celgene worked out a deal with a number of generic drug developers to allow a small portion of generic Revlimid in the market beginning in March 2022 and for each subsequent year. By the end of January 2026, generics can then flood the market. Essentially, Celgene ensured that it kept generic competition off the market for another decade, freeing it up to generate significant cash flow that it can use to reinvest in its pipeline and inorganically.
Speaking of inorganic growth, Celgene acquired Receptos in the summer of 2015 for $7.2 billion in order to get ahold of ozanimod, an experimental next-generation treatment for multiple sclerosis and ulcerative colitis. If approved, Celgene has suggested it has the potential to top $4 billion in annual sales.
Similarly, Celgene isn't afraid to use its strong cash flow as a carrot to gain access to first-in-class therapies. It has dozens of collaborations that could yield billions in milestone payments to its partners, but it also gives Celgene a front-row seat that could allow it to license new cancer and inflammation therapies.
With double-digit growth expected for years to come and a PEG ratio that's below 1, Celgene remains a strong candidate to hold over the long haul.
This is a marathon, not a sprint
Demitri Kalogeropoulos (Nike): Nike was the Dow's single worst performer last year as the company booked disappointing growth and declining profitability. Like its rivals in the sports apparel industry, the retailer's results were sunk by weakening demand in the key U.S. market. Nike's domestic sales are up just 4% over the past nine months, compared to an 11% gain in the prior-year period.
Things could get worse before they get better, since Nike sees a fundamental shift in shopping behavior hurting the physical retailing business.
Profitability should begin rising again as soon as inventory levels better match up with demand. Looking further out, there are good reasons to expect Nike to win this race over the longer term. With 50% of sales coming from international markets, for example, it is better equipped than rivals to handle a prolonged U.S. industry downturn. Its strong global brand, meanwhile, is bolstered by a level of marketing support that very few companies can match.
CEO Mark Parker and his executive team are working to speed up their innovation pace so Nike can stay ahead of shifting consumer tastes. They also hope to realign the portfolio to better compete at the premium end of the shoe and apparel categories. Results over the next few quarters might be uninspiring as Nike invests in these changes and adjusts to soft customer traffic in the U.S. But years from now, the company should still enjoy a dominant position in the industry that's delivered more than its fair share of profits.
If price were no object...
Rich Smith (Visa): If you ask me for a stock idea "for the long haul," I interpret that as a stock that I'd like to buy -- once the price is right -- and then continue to hold forever. That's sort of a pie-in-the-sky proposition, because a really great stock may never get bid down to a price low enough that I'd consider it "right."
Be that as it may, if the price were right, the stock that I personally would like to own for the long haul is Visa.
Why? The reasons are pretty simple, really. First and foremost, I'm convinced that we're in the middle of a long-term transition toward a cashless society, in which all money is earned, stored, and transferred electronically. This process has been evident for years, and you can see it in the decreasing frequency with which checks are signed at the grocery store checkout register, the disappearance of bank branches whose primary purposes include dispensing and collecting legal tender -- even the recent trend of banks pushing consumers to use prepaid cards to pay their children's allowances.
All of this argues in favor of owning companies like Visa, or MasterCard (MA 0.65%) stocks "for the long haul." The reason I choose Visa over MasterCard, meanwhile, is just a personal observation. Lately, when I receive a credit card pitch from a bank, nine times out of 10 it is for a Visa card -- not MasterCard. Maybe it's just me, and maybe other consumers get other pitches, but that fact just reinforces my impression that of the two major credit card processing companies, Visa is the one on the upswing and MasterCard on the down. (But I don't think it's just me. Last quarter, Visa's revenue grew more than 25% year over year -- and more than two-and-a-half times faster than MasterCard's).
All this being said, both stocks share prices currently sit far above what I'm willing to pay for them. Visa, in particular, at nearly 35 times trailing earnings with long-term growth projected at 16%, simply costs more than I'm willing to pay. But if the price should fall, due to a recession, a fear that Trump's promised interest rate hikes don't materialize, or simply an investor overreaction to some short-term bad news, then you can bet your bottom dollar that Visa is one stock I'd love to own for the long haul.