Warren Buffett is without a doubt one of the most successful investors of all time, and his pearls of wisdom are among the most quoted in the investing community. The Oracle of Omaha once opined that, "when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."
Finding stocks to hold for the long term can be tough, but finding companies to hold for a half century is even more challenging. With that in mind, we asked three top Motley Fool investors to choose companies that they believed could deliver the goods for the next 50 years. They offered compelling arguments for enterprise-computing titan International Business Machines Corporation (NYSE:IBM), online sales juggernaut Amazon.com, Inc. (NASDAQ:AMZN), and fighter-jet manufacturer Lockheed Martin Corporation (NYSE:LMT).
Always changing as it goes
Reuben Gregg Brewer (International Business Machines Corp.): Companies go through cycles, with good periods followed by difficult ones. That's particularly true if a company manages to survive for more than 100 years, like IBM. In fact, the technology giant is working its way through a massive reinvention right now, which is why the shares are down roughly 25% from the highs reached in 2013. That's pushed the yield up to 3.7%, toward the high end of IBM's historical range. So today could be a good entry point for income investors, as well.
More important, the business shift looks like it's nearing an inflection point. IBM has been exiting older, lower-margin operations (like making laptop computers) and shifting toward things like cloud computing, security, artificial intelligence, and blockchain. Revenues at such businesses made up 45% of the top line over the trailing 12 months through September 2017. When that number tips above 50%, growth from new businesses should start to overshadow the slow and steady declines at its older operations. I believe IBM's business will hit a new growth phase at the point.
But that's really a short-term thing. The big story behind the current business overhaul is that IBM has gone through periods like this before, proving it has the corporate ability to adjust with the markets it serves. For example, IBM produced scales and clocks when it first started out. It successfully shifted to computers and then services as customers demanded different things from the technology giant. It's the ability to adjust that makes IBM worth owning for the next five decades (that's a skill that not every company possesses). But it's the relatively cheap entry point today that makes IBM so interesting right now.
The future of retail
Danny Vena (Amazon.com): According to the U.S. Department of Commerce, e-commerce sales represented 8.4% of total retail sales in the third quarter of 2017, having risen from just 3.5% a decade ago. Worldwide, online purchases are expected to account for nearly one-tenth of all retail in 2017, growing 23% year over year -- four times the rate of retail sales.
E-commerce juggernaut Amazon.com sits at the forefront of this trend, having produced year-over-year revenue growth by 23%, 25%, and 34%, respectively, in the first three quarters of 2017. The company's profits have been choppy, as it invests in additional distribution centers and infrastructure to continue its massive expansion.
E-commerce is but one of several pillars driving Amazon's growth.
Amazon Prime, the company's customer loyalty program, provides a host of benefits including free two-day (or sooner) shipping, though Amazon has never divulged how many consumers have joined its ranks. Consumer Intelligence Research Partners estimates it has climbed to 90 million in the U.S. alone, with subscribers willing to fork over $99 per year for shipping, streaming music and video, and unlimited access to a collection of ebooks.
Currently, its biggest profit driver is Amazon Web Services (AWS), the company's cloud-computing service. For the first nine months of 2017, AWS grew to 10% of the company's revenue and all of its profits, subsidizing e-commerce losses as Amazon continues to invest in its global expansion. AWS produced 55% year-over-year revenue growth and operating margins exceeding 25% in its most recent quarter -- and it shows no signs of slowing.
Amazon is also investing heavily in the nascent area of artificial intelligence (AI). The company's Echo smart speakers, powered by its AI-infused Alexa digital assistant, were the top sellers on its online store over the recent holidays. Amazon is also adding AI capability for customers of its cloud computing service.
With this many potential growth drivers going forward, Amazon is building a foundation that will last for the next 50 years and beyond.
1 year down, 49 to go
So yeah, I think I'll go with LockMart once again.
Why double down after Lockheed stock has gotten 25% more expensive? Simply put, the stock price of Lockheed Martin may have changed, but the facts supporting its long-term story have not -- other than to get better.
Lockheed Martin still owns the contract to build F-35 stealth fighter jets -- the plane that former Chairman of the Joint Chiefs of Staff Admiral Mike Mullen called "the last manned fighter" the U.S. would ever build -- for the U.S. Air Force, Navy, and Marine Corps. This plane is still expected to be flying nearly 50 years from now, still expected to generate well in excess of $1 trillion in revenue for Lockheed Martin, and therefore, still likely to guarantee roughly half of Lockheed Martin's annual revenues over that time.
Meanwhile, since I first recommended Lockheed, its F-35 business has only gotten stronger, with Israel ordering more F-35s, Canada publicly rejecting a purchase of Boeing's competing F/A-18 (making F-35 purchases more likely), and just last week, Belgium placing an order for $6.5 billion worth of new F-35s.
So long as the F-35 business remains intact, I think the long-term buy thesis for Lockheed Martin stock remains intact, too.