Instead of chasing the latest investing craze, buying great companies and owning them forever could be a better idea because it reduces lifetime commissions and fees that eat away at your nest egg, and it offers peace of mind. If a long-haul approach makes sense to you, then read on to find out why our investors think AB Inbev (BUD -0.58%), Celgene Corp. (CELG), and Colgate-Palmolive (CL 0.27%) are perfect stocks to sock away long term.
You buy the next round
Danny Vena (AB InBev): When looking to the future, it's best to review the past, and few things have been around as long as beer. While the exact details are unknown, the earliest barley-based alcoholic beverage was enjoyed by the Sumerians in ancient Mesopotamia more than 5,000 years ago. With that type of track record, it's easy to say that beer isn't going away any time soon.
With that in mind, I believe Anheuser-Busch InBev (AB InBev) is a top choice among beer purveyors. It has a pedigree that dates back 600 years and is home to 500 beer brands sold in 150 countries. Its portfolio includes 18 brands that each generated $1 billion in sales and seven of the top 10 brands globally.
Investors have been concerned about slowing beer consumption in the U.S., where consumers have been turning to craft beers, wine, and spirits. While the company still has a heady 45% share of the domestic beer market, changing consumer preferences could continue to dent sales.
But those challenges ignore the fact that AB InBev is the world's largest brewer, with a 26% share of the global market, and significant opportunities in high-growth areas like Africa, China, and Central and South America. Africa is a great example of the opportunity, having consumed an estimated 6.5% of the world's beer volume in 2014, but that's expected to rise to 8.1% by 2025, while its consumption is forecast to grow by 44%, nearly three times the global rate.
Global results are beginning to flow through to the financials. In the most recent quarter, revenue grew by 3.6% year over year, while cost of sales decreased by 1.9% as the cost synergies from the merger with SABMiller take hold. Earnings per share jumped to $1.31 compared to $0.83 in the prior-year quarter.
This dominant position and growing global opportunity amount to one frothy heirloom stock to hold forever.
A bargain bin biotech on sale
Todd Campbell (Celgene): Last fall, a Crohn's disease trial failure and slowing third-quarter sales growth for Otezla, a psoriasis drug, forced Celgene to reduce its 2020 sales outlook to between $19 billion to $20 billion from its prior expectations of over $21 billion. Those disappointments sent shares reeling, creating a great opportunity to add this leading biotech to forever portfolios at bargain prices. Here's why I think investors ought to look beyond last year's stumbles to the future.
Although one of Celgene's drugs missed the mark in Crohn's disease last fall, Celgene's got another chance in that indication via its ongoing trials of ozanimod. Ozanimod's already delivered positive mid-stage results in Crohn's disease, and Celgene is kicking off a phase 3 study soon. Although it's anyone's guess if ozanimod pans out in Crohn's disease, it's encouraging that ozanimod's already under consideration for approval in multiple sclerosis. An FDA decision in MS is expected later this year, and if it gets a green light, I think it could be a blockbuster that adds 9 figures or more to Celgene's top line as early as 2019.
It's also encouraging to see that while Otezla's sales growth slowed to just 12% in the third quarter of 2017, growth reaccelerated to 22% in Q4, alleviating some concern that competition is denting its market share. Otezla's been a big driver of Celgene's success over the past three years, so it's probably smart to bet on slowing growth for it in 2018. However, Otezla revenue growth could pick up again beyond this year because it's being evaluated in other indications that could expand its use beyond psoriasis.
Finally, the lowered guidance for 2020 isn't nearly as worrisome as it may seem. Remember, Celgene's sales were below $3 billion in 2010, so a prediction of $19 billion or more in 2020 remains pretty remarkable. It also shouldn't be ignored that this lowered guidance still reflects compounded double-digit annual growth over the next three years. That's pretty good for a company as big as Celgene.
Admittedly, I don't know where Celgene's shares will trade in the short term, but I'm betting its recent troubles aren't a reflection of a systemic failure in Celgene's business. If I'm correct, then Celgene's deep pockets and a rich pipeline of potential new drug launches should keep Celgene at the forefront of drug development, making it a great stock to add to a multigenerational portfolio.
An easy stock to smile about
Rich Duprey (Colgate-Palmolive): There are few companies in existence that have as long an operating history as Colgate-Palmolive, which was founded in 1806. Fewer still have paid dividends longer: Colgate first began paying a dividend in 1895, and it has hiked the payout every single year since 1963. That record makes it one of less than two dozen companies that are considered Dividend Kings, or companies that have raised their dividends for 50 years or more.
It's been able to do that because of the ubiquity and lasting power of its brands, which span from its namesake toothpaste and dish soap to household cleaners like Ajax and Formula 409, Irish Spring soap, Hill's pet food, and Speed Stick deodorant.
Colgate owns a dominant share of many of the markets it operates in, owning, for example, almost 44% of the global toothpaste market and 33% of the worldwide manual toothbrush market, and with its Softsoap brand, it's the industry leader in the U.S. liquid hand soap market.
Colgate is easily a stock that could be handed down from generation to generation every bit as much as an heirloom Hoosier cabinet, and it would probably be just as valuable, if not more so.