Buying and holding high-quality stocks is the best way to predictably generate wealth over the long term. But truly life-changing returns are reserved for investors who recognize great businesses that they can buy and hold for a lifetime.
To that end, we asked three top Motley Fool investors to each choose a stock they believe investors would be wise to hold forever. Read on to see why they picked Under Armour (NYSE:UA)(NYSE:UAA), Anheuser Busch Inbev (NYSE:BUD), and Tiffany & Co. (NYSE:TIF).
Rumors of Under Armour's demise are wildly overstated
Steve Symington (Under Armour): After posting its very first year-over-year revenue decline as a public company last quarter -- sales fell 4.5% to just over $1.4 billion -- shares of Under Armour unsurprisingly plunged to multiyear lows. For that, investors can thank an extended slowdown in North America, where multiple sporting goods retailer bankruptcies and an evolving retail landscape left Under Armour's sales down 12%. Even so, North America still represented nearly 77% of its total top line.
But before you believe the headlines that say Under Armour is a dying brand, however, keep in mind its higher-margin direct-to-consumer (DTC) business remained strong, with sales rising 15% to $468 million. It's also not the only company that's struggling to find stateside growth. Nike (NYSE: NKE), for example, saw its North American sales dip 3% year over year last quarter -- and that's not including a 16% decline in sales from Nike's Converse subsidiary.
The difference from Wall Street's perspective? Nike's overall business wasn't hit nearly as hard because it collects well over half of its total sales from international markets in any given period, which left its overall revenue flat on a year-over-year basis last quarter.
Meanwhile, don't ignore Under Armour's international segment, where revenue climbed 35% to comprise around 22% of its total sales, showing consumers around the world still have a healthy appetite for its wares. In addition, Under Armour is implementing a business restructuring that aims to reduce product development times, more heavily weigh return on investment when allocating capital, and increase its operating leverage going forward.
That's not to say Under Armour will turn its ship around overnight. But I simply can't envision a world where Under Armour hasn't capitalized on its strengths to become a significantly larger company decades from now. For patient investors who buy now with shares down more than 50% year to date, I think the stock will crush the market in the coming years.
Brewing up long-term profits
Sean O'Reilly (AB InBev): Forever is a pretty long time. But for investors in search of stocks to hold for the ultra-long term, AB InBev is a perfect choice.
AB InBev controls approximately 30% of the global beer market, but that's only half the story. Thanks to its merger with SAB Miller in October 2016, it is the dominant beer brewer in numerous top markets including the U.S., Brazil, Europe, and Africa. Per capita consumption of beer in emerging markets, where AB InBev is dominant, is far lower than in the U.S. The power of this simple truth can't be overstated for the company's long-term investment merits.
AB InBev is starting to prove itself an earnings powerhouse as well. Net revenue in Q3 rose 3.6% year over year to $31.3 billion. Cost of sales actually fell 1.9% year over year in the quarter, led by cost savings derived from its merger with SAB Miller. The company has hit its stride as the world's biggest brewer. Normalized earnings per share came in at $1.31, up from $0.83 in Q3 2016.
Shares currently trade hands at 24 times forward EPS estimates -- more or less in line with the broad market. Its dividend, however, stands out at 3.52%. It's safe to say that people will be drinking beer for the foreseeable future, and thanks to its dominant global presence, AB InBev will be there to give it to them. This is the perfect heirloom stock to hold forever.
Tiffany is still shiny
Rich Smith (Tiffany): Four months ago, I made the case that diamond merchant Tiffany & Co. stock was the very definition of the kind of "heirloom stock" you could buy and hold -- and pass down to your grandkids -- forever. Four months later, Tiffany stock is several dollars cheaper than it was when I first recommended it...
So I'm doubling down.
And why not? At today's share price of less than $91, Tiffany stock pays a richer dividend yield than it did back in July -- 2.2%. Its price-to-earnings ratio of 24.7 has fallen below its long-term average (Tiffany has averaged a P/E of 25.2 over the past decade). Yet the company's growth prospects are undiminished. Analysts who follow Tiffany thought the company capable of growing earnings at better than 9% annually over the next five years. They still think so today .
Really, from where I sit, the only thing that has changed at Tiffany since I mentioned it four months ago is that the company is now generating more cash than it used to. While earnings at Tiffany grew only 9% year over year in its most recent earnings report, Tiffany's free cash flow has jumped to $570 million generated over the past 12 months -- 24% more than the company's reported net income for that same period.
Tiffany stock is shinier than ever. I think it's worth a good, hard look.
Rich Smith has no position in any of the stocks mentioned. Sean O'Reilly has no position in any of the stocks mentioned. Steve Symington owns shares of Under Armour (C Shares). The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV, Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.