Stocks that are worth buying and holding for exceptionally long periods of time are far less common than most investors may think. Changes in underlying market conditions, after all, can knock even top performers off their perches.
Even so, our investors think that Pfizer (NYSE:PFE), Activision Blizzard (NASDAQ:ATVI), and Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) are three rare gems that can, in fact, stand the test of time to deliver respectable returns on capital for their shareholders. Read on to find out why.
Strength in numbers
George Budwell (Pfizer): The pharma-giant Pfizer isn't a stock that particularly excites analysts, and for good reason. The drugmaker, after all, has struggled to clearly articulate its business plan to the investment community following a string of high-value patent losses over the past few years. In addition, the company's return on investment for its various mergers and acquisitions (M&A) endeavors is flat out among the worst in the industry, according to EvaluatePharma. Even so, I have no plans to abandon this top-pharma stock anytime soon. Here's why.
First and foremost, I'm a big believer in the power of dividends. And Pfizer has one of the best among major drugmakers, with a juicy yield of 3.85%. Now, the company does have a payout ratio exceeding 102% at present, but that's not an unusually high figure when it comes to big-pharma stocks. Moreover, Pfizer has an absolute mountain of cash in the bank and enormous free cash flows -- implying that its top-notch dividend is safe.
Secondly, I like the fact that Pfizer has avoided becoming overly dependent on any one-single product to drive growth. Thanks to its massive product portfolio that spans almost every high-value therapeutic area, for instance, the drugmaker's top-selling products -- such as the pain medicine Lyrica -- have typically made up no more than around 10% of total annual sales. And that's a major reason why Pfizer's top line has performed admirably during the peak of the patent cliff -- whereas some of its closest peers have seen their sales plummet in dramatic fashion over this exceedingly difficult period for the industry, as a whole.
While I'm not thrilled with Pfizer's murky vision regarding how it plans to create value for shareholders moving forward, the drugmaker's stellar yield and diverse product portfolio are reasons enough, in my book, to hold onto this stock for the duration.
Playing the long-term game
Keith Noonan (Activision Blizzard): With Activision Blizzard's stock up roughly 380% over the last five years, there's probably some temptation for shareholders to realize their gains and look for new investments that might have greater return potential. However, even with the company's valuation at an all-time high, I think time will show that it's still cheap at current prices. I plan to hold my shares for the long haul.
The video game publisher has a proven track record of creating and sustaining successful properties, significantly growing top-and-bottom line growth opportunities thanks to momentum for digitally delivered content, and appears poised to benefit from momentum in the overall video game industry. While hot industries often attract new competition that diminishes the chance for ongoing success, video game development has a fairly large barrier to entry -- which suggests that the companies that have already survived and thrived through rough periods are in good positions to soak up growth.
The company is already leading the games-publishing space thanks to hit games including Overwatch, World of Warcraft, and Call of Duty, and the strength of its properties and development teams makes it a top candidate to continue leading traditional games sales while taking advantage of new opportunities, like virtual reality and e-sports. I also anticipate that the company's push into merchandise sales with its recently launched consumer-products division will yield great results -- even more so if efforts to turn some of its big-game series into film and television properties prove successful.
Activision's big gains might present a tempting "sell" case, but I won't be unloading shares anytime soon because I still see a lot of promise in its growth story.
The big winner in your portfolio
Dan Caplinger (Berkshire Hathaway): This topic is tough for me, because I don't really believe that there's any stock that you should hold onto no matter what happens. But most long-term investors have at least one stock that's been highly successful for them, and so I'm going to use my particular winner -- Berkshire Hathaway -- as an example for a strategy that technically means I'll never sell.
Highly appreciated stock should be your last candidate to sell because of the tax advantages from taking alternative action with your shares. First, you can donate appreciated stock to charity, getting a full deduction for the market value of your shares without having to realize long-term capital gains. That not only earns you a deduction worth as much as almost 40% of the value of your donation, but also helps you avoid tax on gains that would cost you 20%. If you're looking for a smart charitable gift, appreciated stock is a great choice.
The other advantage comes from holding appreciated stock until your death. Your heirs will get a stepped-up basis in the stock based on the value on your date of death, allowing them to sell it immediately with no capital gains tax. They can also hold onto the shares, and any gain or loss upon future sales will be calculated on the stepped-up basis.
With those two options, selling highly appreciated stock should be a last resort. Use it, instead, for donations or bequests, and you'll be better off.
Dan Caplinger owns shares of Berkshire Hathaway (B shares). George Budwell owns shares of Berkshire Hathaway (B shares) and Pfizer. Keith Noonan owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.