I'm a firm believer that the best way to become wealthy is to buy great companies and hold them tenaciously. For that reason, when I think I've found a great business, I mentally add it to my "never sell" list.
So what are some stocks that I plan on keeping forever? Here's why I consider Verisk Analytics (NASDAQ:VRSK), MarketAxess Holdings (NASDAQ:MKTX), and Mastercard (NYSE:MA) to be core holdings in my portfolio.
A risk management expert
Insurance providers are keenly aware that it is nearly impossible to profitably price a policy without having access to high-quality information. That's why they are happy to pay up in order to get their hands on Verisk Analytics' treasure trove of historical data.
Verisk's database is so desirable because it was created by a number of leading insurance providers way back in 1971. At the time, those same insurers got together to share their information with one another in an effort to better predict losses and drive higher profitability.
Fast-forward to today and Verisk has evolved to become the go-to consultant on any decision that involves risk. The company's platform is capable of collecting and analyzing information from billions of different records in a flash. That allows Verisk to provide its customers with unique insights related to underwriting, economic forecasts, claims, weather events, and more.
What I love about its business model is that Verisk has become deeply ingrained in its customers' daily operating practices. As a result, its revenue is largely recurring and the company is able to pass along regular price increases for its services. What's more, Verisk has a history of buying other information providers in an effort to expand into new industries. When combined, these factors help Verisk to post steady growth on its top and bottom lines over time.
Moving forward, I think that investors can expect more of the same as the company continues to deepen its relationship with its current customers and broadens its reach into new markets. That should drive increased profitability down the road, which is why this is one stock that I plan on holding for the long term.
An electronic bond trading platform
I've been buying and selling stocks online for nearly two decades, so I was shocked to learn that the bulk of bond trading still occurs over email or the phone. Thankfully, MarketAxess Holdings is on a mission to allow bond traders to join the rest of the world in the 21st century. The company's online platform makes it easy for bond traders to buy, sell, or research a variety of fixed-income securities. What's more, MarketAxess' system also greatly increases transparency, liquidity, and enables rapid execution. What's not to like?
Given the advantages, perhaps it shouldn't be a surprise to learn that trading firms are signing up in droves. At the end of 2011, MarketAxess' client count stood around 700. This figure has climbed to around 1,200 today and it continues to rise with each passing quarter.
With so many clients on its platform, MarketAxess has become the lead husky in this market niche. This provides the company with a huge advantage over rivals since bond buyers will naturally be attracted to the platform with the most sellers. The same dynamic is also true for sellers, which positions the company well for continued growth.
Looking ahead, I think that it is highly likely that its platform will continue to thrive as more and more traders realize the benefits of moving online. With a lot of market share left to conquer, MarketAxess looks well positioned to thrive over the long term.
A cash-printing machine
I've been paying for life's necessities with debit and credit cards for years. I greatly favor them over cash or check because the process is seamless and I get to earn rewards with each purchase. I also like being able to review all of my transactions online and I also like the security that cards provide.
All of these advantages have helped credit cards to become ubiquitous in the developed world. This has been a boon for electronic payment processors like Mastercard since it holds a vital role in connecting millions of merchants, customers, and financial institutions together. In exchange for providing this service, Mastercard gets to keep a small fee on each transaction that occurs on its network. With trillions of dollars being processed in the company's network each year, those fees are expected to help Mastercard pull in more than $12 billion in annual revenue this year.
While the big revenue number is great, what attracts me most to Mastercard's stock is that it costs the company next to nothing to process additional volume. This allows Mastercard's profit margins to consistently get better over time. When adding in the company's habit of buying back stock, Mastercard's EPS has been able to grow at a far faster rate than revenue over the long term.
Going forward, I think the company can continue to execute because 85% of global transactions still occur using cash or check. As networks continue to penetrate the developing world, I'm confident that more consumers will make the switch to electronic payment methods. That should allow Mastercard's bottom line to continue to expand at double-digit rates for years to come, which is why I could see myself remaining a shareholder indefinitely.