Buying and holding great businesses is a time-tested method for building wealth. However, capitalism is brutal, so few businesses are truly capable of thriving over the ultra-long term. That's why investors need to be extremely picky about which stocks they choose to buy and hold for decades.
So which stocks do we believe can create shareholder value over the next half-century? We asked a team of Fool.com contributors to weigh in, and they picked Procter & Gamble (NYSE:PG), Tellurian (NASDAQ:TELL), and Starbucks (NASDAQ:SBUX).
Fifty years? That's child's play for P&G.
Anders Bylund (Procter & Gamble): Among the 30 Dow Jones Industrial Average members of 1968, exactly two remain there 50 years later. Chemical giant DowDuPont works in an industry I don't follow closely, so that company's long-term future isn't obvious.
But I would bet all the bread in my basket that Procter & Gamble will stick around for another half-decade -- and beyond.
Let's say you picked up some P&G stock a mere three decades ago, when leg warmers and Motley Crue were all the rage. Today, you're looking back at a massive 1,710% return that left the S&P 500 index far behind at just 974%. In other words, an original investment of $10,000 would be worth more than $180,000 30 years later.
If you also reinvested P&G's generous dividends in more shares along the way, the return swells to 3,670% and the old $10,000 investment would now be worth nearly $370,000. Again, the consumer products giant left the broader market far behind:
Over the same period, the company's annual earnings grew nearly seven times larger while revenue increased 12-fold. It hasn't always been a smooth ride, with several sharp share price drops along the way, but P&G always comes back swinging.
As long as people all around the world need toothpaste, batteries, laundry detergent, and/or deodorant -- which I assume will be forever -- Procter & Gamble is likely to stay relevant. This is a stock you can pass on to your great-great-grandkids a hundred years from now.
An ultra-long bet on LNG
Maxx Chatsko (Tellurian): Considering there aren't any commercial operations to speak of right now, investors would be forgiven for overlooking Tellurian. But if you give me 50 years, then I'm strongly considering placing an ultra-long-term bet on the energy stock. That's because the company has an intriguing plan to shake up the liquefied natural gas (LNG) market.
Consider that the first companies to bet on LNG markets needed to raise tens of billions of dollars in debt to fund the construction of massively expensive production facilities and export terminals. While it has worked out exceptionally well for pioneer Cheniere Energy -- which has delivered 10-year stock gains of 2,090% and sports a $16 billion market cap -- it entered the year with $25 billion in consolidated debt. More important for investors to consider is the fact that customers today are much less willing to enter into supply agreements of similar length and volume. In other words, the very agreements necessary for companies building LNG facilities to secure the debt required at decently favorable prices.
So what if a company could build gargantuan LNG facilities without so much debt? Enter Tellurian.
The $1.9 billion company is developing a $30 billion LNG project called Driftwood. The enormous Gulf Coast facility would be able to ship 4 billion cubic feet per day of product, enough to power 20 million U.S. homes for a day. But it wants to do things differently. Instead of raising ridiculous amounts of debt to build a facility and selling LNG for a fixed fee, the company plans to sell equity in Driftwood to customers and sell the LNG at cost. That would smooth out volatility from commodity markets and allow the company to scale projects more quickly and cheaply than peers.
More importantly, the business model could address the increasingly differing needs of LNG customers and those of heavily indebted producers with laser-like precision. That provides confidence that Tellurian's strategy will have little trouble catching on, as does the list of current partners, which includes Total SA, General Electric, and Bechtel. Of course, this is a complex investment with many moving parts and question marks. But if everything works out, then a small investment today could be worth quite a bit more in a few decades' time.
Focus on what won't change
Brian Feroldi (Starbucks): I have no idea what everyday life will look in five decades' time, but I'm willing to bet that humans will still need a cup of joe to help them get moving in the morning. That's why Starbucks ranks as one of the few companies that I own that I could see myself owning for the next half-century.
But what is it about Starbucks that makes me believe so much in its long-term potential? Let me count the ways:
- It sells an addictive product that is an easily affordable luxury.
- The company's strong brand and ubiquity in everyday life gives it strong pricing power.
- Starbucks' enormous scale gives it buying power that should help it to maintain margins over time.
- Food, consumer packaged goods, digital rewards, drive-thrus, international expansion, and Reserve represent multiple paths toward growth.
- The company's strong corporate culture and focus on conscious capitalism helps to make it built to last.
- Starbucks has a history of using its financial might to reward shareholders.
Overall, I believe that these factors make Starbucks well-positioned to thrive over the long term. With shares currently on sale, I think right now is a fantastic time for investors to hitch their wagon to this perennial winner.
Anders Bylund has no position in any of the stocks mentioned. Brian Feroldi owns shares of Starbucks. Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.