If you are young enough to have a 50-year investment time window and be around to see the results, congratulations -- you have quite possibly the greatest investing advantage out there. While there is a lot of margin for error with that long of an investment time horizon, the best bets you can make today are in companies with sustainable competitive advantages that will be around 50 years from now or even more.
So to give people with an ultra-long investment time horizon some ideas, we asked three of our contributors to highlight a stock they see as a 50-year investment. Here's why they picked Waste Management (NYSE:WM), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and American Outdoor Brands (NASDAQ:AOBC).
A moat so wide it will take 50 years to swim across
Tyler Crowe (Waste Management): Some of the most desirable industries in which to invest are the services that no one actually wants to do. That alone makes Waste Management an intriguing investment, but there are loads of competitive advantages that are likely to keep this refuse handler around for 50 years and maybe more.
One thing that is greatly underappreciated about Waste Management is how much of a leg up it has on the competition. The chances of a start-up coming into this business are incredibly slim. The numerous permits needed, the costly environmental-regulations compliance, and the NIMBY (not in my backyard) effect mean that getting a new waste landfill up and running is hard for any company that doesn't have either truckloads of money or lots of experience in doing these sorts of projects. This makes any existing landfill extremely valuable.
Second, waste is an extremely capital-intensive business. The real value for Waste Management and others in this business isn't just the landfill itself, but the waste collection. To provide this service, companies need to spend billions to build, expand, fuel, and maintain a fleet of waste collection vehicles. On top of that, they need to have long-term waste collection contracts with municipalities. All of these things make Waste Management's business incredibly difficult to disrupt.
Those are the traits that will keep it around for 50 years, but the reason it is a great stock is because its management translates those durable business advantages into a high-return machine. Waste Management has produced double-digit returns on equity for more than a decade and throws off lots of cash to investors via a growing dividend and share repurchases. Waste collection may not be the most exciting industry for the next 50 years, but it will be an important one.
The tech giant with staying power
Travis Hoium (Alphabet): The business world is changing faster than ever, and that is especially true in the technology sector. So finding a company that will be around in 50 years may be harder than it seems, but I think Alphabet fits the bill.
Alphabet is fundamentally an information company, matching advertisers with internet users, whether they're searching on Google's website or surfing the web. And as the company moves further into mobile products and home devices, it learns more about what people want and how to match them with advertisers, who in turn really value the company's ability to match them with the best customer. And you can see below that both revenue and earnings have been growing like weeds since the company went public:
On top of the existing money-making machine at Alphabet, the Google innovation side of the business is one of the best research and development centers in the world. The company could be a major player in automobiles (Waymo), internet service providers (Loon and Titan), and even healthcare -- if its research projects work out. A lot will change in the next 50 years, but I'm willing to bet Google will play a big role in what the world looks like 50 years from now.
Around for another 150 years
Rich Duprey (American Outdoor Brands): Founded in 1852 and still going strong today, Smith & Wesson will likely still be around for at least another 50 years, and will still be an industry leader. That means taking a stake in its parent, American Outdoor Brands, which, in addition to manufacturing firearms, is diversifying itself to incorporate categories related to shooting sports, or what the company calls the rugged outdoors market.
But it's still guns that matter most to American Outdoor, accounting for almost 90% of its revenue. While 50 years from now that percentage will undoubtedly be much lower, the division will remain a core component of the company's operations. And just as well, because there is no indication there will be any letup in the growth of the industry.
The National Shooting Sports Foundation, the firearms industry's trade association, recently published a survey that found that despite all the noise about gun control and regulation, the growth of the firearms industry is mostly tied to the popularity of target shooting, which, due to the influx of new shooters who are younger, female, and urban, has seen participation surge from 34.4 million people in 2009 to 49.4 million in 2016. Political issues have a bearing on the timing of a purchase, but not on the continuing demand for guns.
That's key because firearms sales remain on an upswing, and American Outdoor Brands is a cheap stock. It continues to trade at just 10 times earnings, 14 times next year's estimates, at just a fraction of its expected earnings growth rate, and at a bargain-basement eight times free cash flow. The stock has jumped 25% over the last three months as Wall Street begins to realize it was wrong about a so-called "Trump slump," but with shares still deeply discounted, buying now will reward investors many times over 50 years from now.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any stocks mentioned. Travis Hoium has no position in any stocks mentioned. Tyler Crowe owns shares of Waste Management. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns shares of Waste Management. The Motley Fool has a disclosure policy.