It almost seems foolhardy to talk about holding a stock for 50 years. There are so many things that can happen to derail a company on a given day or week, let alone five decades into the future.
There are, however, numerous criteria an investor can use to increase the chances that a stock will be a winner half a century from now. A revolutionary service with staying power, tapping into a growing demographic or societal trend, or a decades-long track record can all increase the odds that a company will still be in your portfolio come 2068.
With that in mind, we asked three Motley Fool investors to choose companies they believed could stand the test of time. They offered convincing arguments for Netflix, Inc. (NASDAQ:NFLX), Amazon.com, Inc. (NASDAQ:AMZN), and Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B).
This revolution will be televised
Jeremy Bowman (Netflix): Fifty years is a long way to see into the future, but one company that looks poised to have a dominant position in a huge industry, and therefore reward investors is Netflix. Coming off a quarter with record subscriber additions, Netflix is growing faster than ever, poaching top talent, and ramping up spending. The streaming race may be heating up as Disney and others come into the fold, but Netflix keeps just moving further ahead. With the company set to release 80 original movies and dozens of seasons of TV shows, the service continues to offer incredible value for subscribers at a price of just $11 per month.
There's plenty of room for Netflix to grow in the future as well. In 2015, CEO Reed Hastings predicted that internet TV would rise every year for the next 20 years, while linear TV would decline, a prediction that looks more accurate with each passing year. Even though Netflix now has 117 million subscribers around the world, it could still triple its subscriber base, and beyond video streaming, it could have opportunities by branching out into movie theaters and live sports.
Investors concerned about Netflix's valuation should be aware that the company's profit margins are rapidly increasing and that management sees free cash flow eventually turning positive as content spending plateaus.
There's no question that video streaming will be a huge industry as movies and TV are popular around the world, and the technology allowing streaming is still advancing. If Netflix can continue to lead the field, the stock is sure to be a winner over the next 50 years.
4 explosive trends
Danny Vena (Amazon): If you're looking to tap into the biggest trends around, let's talk e-commerce, cloud computing, artificial intelligence, and streaming video. There's only one company that holds a dominant position in each one -- and that's Amazon.com.
While Amazon didn't invent the concept of e-commerce, it has certainly become synonymous with online shopping. Last year may have been a watershed moment for the company, however, as it nabbed an estimated 44% of all e-commerce sales in the U.S. and a mind-boggling 4% of all retail sales, according to a study by One Click Retail. That generated product sales of $119 billion.
Online retail isn't the only area that Amazon dominates. The company began leasing unused space on its servers in 2006 and the cloud computing revolution was born. Amazon Web Services (AWS) is the undisputed leader in the field and now accounts for 10% of Amazon's revenue and all of its operating income for 2017, producing $17.5 billion in revenue, up 43% year over year.
Amazon has been working in the area of artificial intelligence (AI) for more than five years. The Echo smart speaker and its voice-activated digital assistant Alexa are the fruits of that labor. This is another area that Amazon pioneered, and it's still the top dog, controlling an estimated 69% of the smart speaker market. This isn't just a novelty, either. Research shows that Echo owners spend 66% more than the average customer, so Alexa and company provide Amazon with a significant competitive advantage.
Netflix, Inc. (NASDAQ:NFLX) is the leader in streaming video, but Amazon provides the company's only serious competition to date. An estimated 61% of streaming video customers surveyed subscribe to Netflix, while 36% use Amazon Prime Video, according to a report by Hub Research.
As the only company with a significant presence in each of these growing trends, investors should feel confident in Amazon's stock for the next 50 years.
A stock you can own with confidence
Jordan Wathen (Berkshire Hathaway): If there is any business likely to be around a half-century from today, Berkshire Hathaway is certainly it. It's a combination of four incredible businesses -- insurers, utilities, manufacturers, and one of the world's largest railroads -- that should continue to throw off billions of dollars in cash each year for a very long time to come.
To be sure, the next 50 years for Berkshire won't be anything quite like the last 50 years. It's simply grown too large to beat the market by a wide margin, as CEO Warren Buffett has struggled to put capital to work as quickly as it's coming in the door. Barring a very deep downturn that would allow Berkshire Hathaway to make investments at bargain prices, I suspect we're only a few years away from its first dividend.
Most importantly, the culture and incentive structures Buffett and Charlie Munger have cultivated over the years are unlikely to change. GEICO's underwriters will still be incentivized to focus on profitability over the long haul, not the next quarter. Greg Abel and Walter Scott will still own a small piece of Berkshire Hathaway Energy, giving them incentive to take the long view. Its portfolio managers will still stand to make more money when they beat the S&P 500.
Stated simply, Berkshire Hathaway is a combination of safer-than-average businesses managed by people who are much better aligned with shareholders than the average public company. It's a company that you could easily buy and hold for 50 years, and sleep well at night holding it.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon and Netflix. Jeremy Bowman owns shares of Netflix. Jordan Wathen has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Berkshire Hathaway (B shares), and Netflix. The Motley Fool has a disclosure policy.