The first thing that I ask myself when looking for stocks that I could hold in my portfolio forever is "Will this business be around in 50 years?" For example, people will need safe places to store their wealth, reliable ways to get around, and access to healthcare.
Once it has been established that the industry will endure the test of time, there are a few other attributes to look for in a "forever stock." Financial strength, growing revenue, and a shareholder-friendly capital return policy are a few examples. With these things in mind, here are three stocks that you could buy and hold for decades to come.
One of the most solid U.S. banks
U.S. Bancorp (NYSE:USB) is the fifth-largest bank that's based in the United States, and to be clear, the stock isn't cheap. In fact, the bank's price to-book value is the highest of the largest U.S. banks by far.
However, the stock is expensive for a reason. U.S. Bancorp is consistently the most profitable of the big banks, and the bank has grown tremendously over the past decade or so, emerging from the financial crisis even stronger than it went in.
In addition, the bank is among the strongest financial institutions in the U.S. As my colleague John Maxfield recently pointed out, U.S. Bancorp was one of the few banks in the recent Federal Reserve stress tests that would still make money during a hypothetical nine-quarter downturn. This shouldn't be too surprising -- U.S. Bancorp never even had a single quarterly loss during the actual financial crisis.
With excellent asset quality, a solid balance sheet, and strong profitability, there's no doubt in my mind that U.S. Bancorp is a stock that you can confidently buy and hold for the long haul.
Unbelievably cheap and financially sound
Shares of automaker General Motors (NYSE:GM) trade for just 6.1 times trailing-12-month earnings at a time when most of the market looks rather expensive, despite the company posting some excellent profits over the past few years.
To be fair, auto industry experts are projecting a downturn in vehicle sales in the next few years, and this is likely to put pressure on General Motors' profits. To name a few examples, analysts at Morgan Stanley see auto sales peaking in 2017, while J.D. Power is projecting a small drop this year.
However, there's still a good case to be made, even if a rather large drop in auto sales does occur. The company is generating enough cash to cover its 4% dividend several times over, and has plenty of cash in reserve. In fact, it is committed to maintaining a cash reserve of $18 billion. Operating margins have been expanding thanks to the popularity of highly profitable vehicles such as crossovers and pickup trucks. Finally, it has become a leader in innovation and plans to stay that way, even throughout a downturn.
In a nutshell, this is not the same General Motors that existed before the Great Recession. In fact, GM has become a solid, well-run company that is capable of thriving in any environment, but it's trading at a valuation as if it were headed toward insolvency.
A great investment in a "forever" industry
Healthcare is certainly an industry that will be needed forever -- regardless of what happens with the Affordable Care Act (or Obamacare) and other healthcare legislation, people will always need quality medical care.
My favorite way to invest in healthcare is through real estate, specifically the types of healthcare properties that stand to benefit from the expected growth in the U.S. population. Ventas (NYSE:VTR) is one of the largest healthcare real estate investment trusts (REITs), and it has a lot of opportunity for growth over the coming decades.
Ventas owns more than 1,200 properties, and about 55% (by net operating income) are senior housing, with another 19% comprised of medical offices. Life science facilities, health systems, and a few other property types take up the rest. Ninety-four percent of tenants' revenue comes from private-pay revenue sources, which are more stable than government reimbursements like Medicare and Medicaid.
To make a long story short, Ventas is a forever stock because it is one of the largest and most efficient operators, and should have tremendous growth opportunities as the senior citizen population grows over the coming decades. The 75-and-older age group is expected to grow by 14 million people by 2030, and is growing at seven times the rate of the overall population.
In addition, less than 15% of healthcare properties are REIT-owned, which will create a lot of opportunity for consolidation. And Ventas' size and financial flexibility give it a major advantage over peers.
What is a forever stock, anyway?
It's important to point out that there is no stock that you can guarantee will be a great investment forever. It's still important to check up on your stocks periodically to make sure the reasons you bought them in the first place still apply. So while you can buy these stocks with the intention of holding them forever, you shouldn't buy these, or any other stocks, to simply set them aside and forget about them.