People often think that not buying the Next Big Stock is the move that they'll regret years later. Often times, however, that isn't the case. Instead, it is selling a winning stock for no other reason than to lock-in long-term gains that truly comes back to haunt individual investors.
As Motley Fool co-founder David Gardner has demonstrated with his 35,400% return from a 1997 investment in Amazon.com, you can only reach such highs if you're willing to continue holding even after you have a 100%, 1,000%, and 10,000% return.
That's not easy to do. So today, three Motley Fool investors tell you about three stocks that you can buy and should hold for decades. Read on to find out why McDonald's (NYSE:MCD), HCP (NYSE:PEAK) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) -- better known as the parent company to Google -- all make the list.
Value and convenience
Tim Green (McDonald's): Few restaurant chains find the formula for decades-long success. Competition is fierce, consumer tastes are constantly evolving, and missteps can tarnish a brand for years. McDonald's, which not too long ago was struggling with declining sales, is now putting up strong numbers, driven by initiatives such as all-day breakfast and a deeper focus on providing value to its customers. The company's ability to adapt makes it a stock to own for the long run.
The company's third-quarter results look out of place during a time when many restaurant chains are struggling to attract customers. Global comparable sales jumped 6%, while U.S. comparable sales rose 4.1%. The company's refranchising efforts led to a revenue drop, but adjusted earnings per share increased by 9% year over year.
Beyond menu changes, McDonald's is embracing technology. The company's mobile app, which features digital coupons, is driving customers to its restaurants and creating incremental sales. McDonald's also offers mobile ordering through its app and delivery through UberEats. It needs to win on both value and convenience. It's doing just that with these initiatives.
Shares of McDonald's have surged this year, so the stock is far from a bargain. But if you're a long-term investor able to ignore the ups and downs of the market, the fast-food king is a good bet.
Investing in one of America's biggest demographic trends
Tyler Crowe (HCP Inc.): The baby boomer generation is at the age of retirement, which is causing a massive shift in U.S. demographics. Between now and 2030, the 75-and-older cohort of Americans is expected to grow by more than 50% to just under 10% of the total population. The reason that's important for real estate investment trust HCP is that average annual healthcare spending tends to skyrocket after age of 65. That's not just doctor or hospital visits, either. That includes services such as assisted living and senior housing, a market on which HCP is betting heavily.
According to HCP, the market value of all U.S. healthcare-related real estate is around $1.1 trillion, and it's likely to grow as people are living longer and baby boomers get on in years. Just to give an example, the senior-housing market should grow by 40% between now and 2030, which gives HCP and other healthcare related REITs a massive investment opportunity over the next decade in just one segment of the market. That doesn't include other healthcare properties such as medical offices and life-sciences laboratories that are core holdings at HCP
Over the past year or so, HCP's management has reconfigured its buisness to prepare for this massive investment opportunity. It spun off its skilled-nursing and acute-care properties last year, it's diversifying its tenants, and it is improving debt metrics to get an investment-grade rating. All of these things should better position HCP to capture this multi-decade opportunity.
As a REIT, HCP is already a high-yield dividend stock that has a reasonable payout for the industry. With demographic trends on its side, this looks like a stock you can hold for a long time.
You're getting moonshots for free -- give them time
Brian Stoffel (Alphabet): One of the reasons Google changed its name to Alphabet was to put a focus on its "other bets" outside the core Google search and advertising juggernaut.
Even without these side projects -- which I'll get to in a second -- Alphabet is a worthy investment. The company has an unmatched data set -- which is helping it dominate the transition to online advertising. It has a war chest of $107 billion against "just" $3 billion in long-term debt. And over the past year, it has produced $24 billion in free cash flow -- almost solely thanks to the advertising business.
But it's the company's moonshots -- experiments with products that could drastically change the way we live -- that are a the real reason to hold for decades. While the likelihood that any one moonshot will be a success is slim (hello, Google Glass 1.0), all it takes is one project to "hit" to notably move the needle for investors.
Increasingly, it's looking as if Waymo -- Alphabet's self-driving-car initiative -- might be the first major hit. No matter how it plays out, however, you can only be exposed to this potential if you buy and are willing to hold shares over the long run.