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2 Stocks You'll Brag About Owning Someday

By Rich Duprey and Chuck Saletta – Sep 30, 2017 at 3:30PM

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IBM and MGP Ingredients are two companies that are likely to reward shareholders for years to come.

Buying good companies at good prices and holding on to them for years, if not decades, has proved to be the best way to grow wealthy. So which stocks do we think are great buy-and-hold candidates today? We asked that question of two Motley Fool investors, and they chose IBM (IBM -0.49%) and MGP Ingredients (MGPI 0.66%).

A man touches his finger to a dollar sign on a transparency that also includes a rising bar chart, a map, and binary code.

Image source: Getty Images.

A beaten-down technology titan

Chuck Saletta (International Business Machines): Technology titan IBM has gone through tough times recently. Revenue has been shrinking on an annual basis for the past several years, and it's only thanks to a large, long-term share-buyback program that its per-share earnings have looked reasonably solid.

Financial engineering doesn't make for a compelling long-term investing story. What does is that IBM is reinventing itself and positioning itself for future growth. It's in the process of refreshing its mainframe lineup, with a new offering focused on cybersecurity and cloud computing. 

While mainframe computing may not sound like the hottest technology around, a new offering frequently sets off a wave of upgrades. That could provide a temporary reprieve of IBM's revenue declines. Of course, a temporary revenue bump from a mainframe upgrade cycle won't be enough on its own to return it to sustainable growth. Still, it should give the company a bit more runway for its "strategic imperatives" to continue their growth.

At some point, growth in those strategic imperatives should offset declines in IBM's legacy businesses. It may then once again become a stock you'd be willing to brag about owning. Between now and then,  a reasonable valuation combined with a rising dividend  makes it a stock that deserves consideration for a patient investor's portfolio.

Glass of whiskey on a barrel

Image source: Getty Images.

The toastmaster you never heard of

Rich Duprey (MGP Ingredients): Whiskey has arguably never been more popular than it is today, but regardless of what brand you drink, you're probably imbibing the spirit created by one company, MGP Ingredients, a contract distiller that counts among its clients some of the biggest producers, including Diageo (DEO -1.08%), as well as a bevy of small so-called "craft distilleries." It lives in the shadows of others and prefers to keep it that way.

In the second quarter, MGP experienced a 15% increase in net premium alcohol sales as distilled products rose 6%, which was more than enough to offset the 7% drop in industrial alcohol sales. Industrial alcohol is used in food-grade products such as vinegar, as well as non-food applications such as hair spray. The distilled products are primarily premium bourbon, such as Diageo's super-premium Bulleit bourbon. (It's important to note that all bourbon is whiskey, but not all whiskey is bourbon.)

Global whiskey volumes are expected to grow by 55.2 million 9-liter cases over the next five years, with the U.S. market contributing almost 9 million cases to the total. Analysts expect MGP Ingredients to keep growing earnings by 15% annually over that same time frame, and though its stock is up 56% in the past year, it's probably one you'll still be able to brag about owning in the future.

Chuck Saletta owns shares of IBM and has the following open options positions: short October 2017 $145 calls, long January 2018 $160 calls, short January 2018 $160 puts. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Diageo. The Motley Fool has a disclosure policy.

Stocks Mentioned

MGP Ingredients Stock Quote
MGP Ingredients
$116.79 (0.66%) $0.76
International Business Machines Stock Quote
International Business Machines
$147.05 (-0.49%) $0.73
Diageo Plc Stock Quote
Diageo Plc
$185.18 (-1.08%) $-2.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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