As Warren Buffett has said, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." For long-term investors, this rings especially true, as a great company will prove itself over time no matter what price you pay for its stock. Companies that have economic moats -- i.e., sustainable competitive advantages -- and enduring business models based on timeless products are the best ways to reap long-term rewards from the stock market.
Here, three of our contributors share their pick for the best stock to hold for the next 20 years. Keep reading to see why they recommend Thor Industries (NYSE:THO), Geron Corp. (NASDAQ:GERN), and Netflix Inc. (NASDAQ:NFLX).
This stock could really motor (home)
Rich Smith (Thor Industries): One stock that I'm particularly interested in following over the next 20 years is recreational-vehicle maker Thor Industries. As others have pointed out recently, the next 15-20 years are set to see the bulk of the baby boomer generation retire. It's long been suspected that this phenomenon will be a boon for RV makers like Thor, and for good reason, too. Thor's sales were up 50% year over year last quarter.
Nearly five times bigger by sales than its better-known rival Winnebago Industries (NYSE:WGO), Thor sports a lower P/E ratio (21 times earnings versus Winnebago's 27), yet a slightly faster projected growth rate on Wall Street (16% versus Winnebago's 15%). Thor's balance sheet is also in better shape, with nearly $80 million more cash than debt, versus Winnebago's $240 million in net debt position. And Thor pays a slightly bigger dividend, too -- better than 0.9%, versus Winnebago's 0.7%.
For the record, both Thor and Winnebago boast ultra-low payout ratios in the mid-teens, so don't be surprised if those dividends grow over time. Still, the numbers favor Thor on most other valuation metrics. I think Thor may be the better bet for investors looking for RV stocks to hold as the baby boomer generation hits the road over the next 20 years.
A counterintuitive pick
George Budwell (Geron Corp.): Investing for the long term is arguably the only way to consistently generate top-notch returns on capital. When doing so, though, most investors tend to stick to dividend-paying large-cap stocks that are fairly resistant to downturns in the market, or the broader economy in general.
Breaking with the classic defensive investing paradigm, I think the clinical-stage biotech Geron Corporation is setting up to become an outstanding stock to hold for the next 20 years or so. Geron has partnered with Johnson & Johnson (NYSE:JNJ) to assess the anti-cancer properties of the telomerase inhibitor, imetelstat, across a diverse set of blood-based malignancies. And there are two key issues that make Geron's story particularly intriguing from a long-term perspective.
First off, imetelstat occupies a unique niche within the anti-cancer drug landscape as the only direct telomerase inhibitor currently in clinical trials. This situation is unique, given that this experimental drug may sport disease-modifying properties for some indications like myelofibrosis, and it may eventually end up becoming a backbone for literally dozens of combination therapies. Over 90% of all tumors, after all, exhibit elevated levels of telomerase activity.
The second issue is that the market completely misunderstands Geron's value proposition. To be fair, Geron is in a precarious situation at the moment, as its fate depends entirely on imetelstat. However, this relatively unknown biotech is potentially developing a drug that could turn out to be a pivotal step forward in the fight against cancer.
Inhibiting telomerase activity, after all, is widely believed within the scientific community to be one of the most important goals of future oncology treatments. If imetelstat turns out to be the drug that achieves this lofty goal, the sky is quite literally the limit for Geron and its shareholders. That's why I recently started buying this risky small-cap stock and plan on holding it for the duration.
An entertainment empire
Jeremy Bowman (Netflix): Netflix has already made plenty of long-term investors rich, as the company has gone from an upstart DVD mailer to a Hollywood power player in just about a decade. While Netflix is now worth $81 billion, more than entertainment giants Time Warner and 21st Century Fox, there's plenty more room for the company to grow. CEO Reed Hastings has even laid out his long-term vision for the company, explaining that internet TV will increase each year for the next 20, while linear TV will decline each year.
Netflix plans to spend $7 billion to $8 billion on content next year, much more than any of its rivals, and its pursuit of original programming has paid off as the company has racked up an ever-increasing number of Emmy awards and nominations, trailing only HBO this year.
While pay-TV operators are losing subscribers, Netflix's subscriber growth has been faster than ever in recent quarter. The company is set to add nearly 22 million subscribers this year as hits such as Stranger Things continue to draw a new audience at home, and international membership is ramping up as brand awareness spreads and technology and internet connectivity improve overseas.
Twenty years since founding Netflix, Hastings has executed near perfectly, successfully transitioning the company to streaming and then to original programming. With Netflix now at the forefront of the video entertainment revolution, the next 20 years should bring even greater rewards.
George Budwell owns shares of Geron. Jeremy Bowman owns shares of Netflix and Winnebago Industries. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Johnson & Johnson and Netflix. The Motley Fool recommends Thor Industries and Time Warner. The Motley Fool has a disclosure policy.