3 Stocks to Buy and Hold for Decades

E-commerce, search, and robotic surgery make the list.

Brian Stoffel
Brian Stoffel, Jamal Carnette, CFA, and Nicholas Rossolillo
Dec 22, 2018 at 8:00AM
Investment Planning

Back in 1957, the average holding period for a stock listed on the New York Stock Exchange was 8.3 years. While that's not technically a decade, it does mean that most investors were, in fact, long-term ones. Today, that figure sits at just about eight months.

Clearly, we've traded away one of the greatest factors working to our advantage: a long-term time horizon -- or time arbitrage, as it's also known. But you can choose to buck this trend and profit in the process. Below, we tell you why Shopify (NYSE:SHOP)Intuitive Surgical (NASDAQ:ISRG), and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) are excellent stocks to hold for decades.

Year 2030 written on a paper with a green pushpin beside it.

Image source: Getty Images.

All things to all digital commerce companies

Nicholas Rossolillo (Shopify): Tech outfit Shopify has been a big beneficiary from the migration to digital commerce. The company got its start helping retailers build and manage an online presence, but over the years, it has grown into a full-blown platform enabling all sorts of technology-driven solutions -- things like shipping management, cash advances, digital- and physical-store payment-processing tools, even augmented-reality software that lets shoppers "sample" product in their home before they make a purchase.

Shopify's biggest growth driver has been its "merchant solutions" segment, up 70% through the first three quarters of 2018. That big increase is primarily attributable to merchandise Shopify's customers sell on its platform. The more Shopify's customers sell, the more money Shopify makes, and that could be a tailwind that lasts for a long time. The value of goods sold on the internet is up 10% so far in 2018, the 16th time in the last two decades online shopping has increased by double digits; yet according to the U.S. Census Bureau, only 11% of total retail sales are made online. That means there's plenty of room for expansion indeed.

Besides getting a boost from consumers' steady migration to the internet, Shopify has also been growing the number of merchants that use its services. Part of that is a function of the company continuing to expand its presence around the globe -- like the introduction of Shopify Payments to Germany during the third quarter. To promote e-commerce and the entrepreneurial spirit, the first ever Shopify brick-and-mortar "store" was also opened in the third quarter in Los Angeles. The angle there is to let small business owners sample what Shopify has to offer before signing up.

The only downside to owning the stock is that Shopify isn't profitable, as the company aggressively plows cash back into the business to grow revenue. That can make for some wild swings in share price, especially if the company even slightly misses the lofty expectations investors have grown to harbor. Nevertheless, this digital-first business promoter is enjoying massive success and should continue to as the world relies more heavily on the internet in the decades ahead.

An insurmountable head start in robotic surgery

Brian Stoffel (Intuitive Surgical): The very first da Vinci robotic surgical system was rolled out in 2000. Since then, more than 5 million operations have been performed using da Vincis. There are more than 4,400 machines installed globally and more than 43,000 surgeons trained on the platform.

Normally, I'm not one to believe that "first mover" status is enough to make a company a long-term winner. But with Intuitive Surgical, I'm willing to make an exception. Here's why: The company benefits from two enormous moats as a result of this decade-long head start, and they are only getting stronger. 

3-D rendering of a robot surgery machine with four arms.

Image source: Getty Images.

The first moat comes from high switching costs. Hospitals have to pay more than $1 million to get the most recent da Vinci models. That kind of investment alone means the hospitals are incentivized to use the machines to recoup their costs. But I see a future in which Intuitive may go toward a usage-based -- instead of one-off-purchase -- model.

Even then, however, we need to remember that more than 43,000 doctors have spent their professional lives training on da Vincis. They aren't going to abandon the platform after so much time devoted to a system that's clearly working for them.

The second moat comes from a sneaky network effect: With each additional doctor and patient using da Vinci, the company's value grows incrementally. That's because these doctors tinker with using the machines on ever more procedures. Over time, that increases Intuitive's utility to patients, doctors...and shareholders. This has already proven out: five years ago, hernia repairs weren't on investors' radar; today, they are leading growth for the company

Combine these two forces, and I think we've got a market-beating stock for decades to come.

The king of search, advertising, and...moonshots?

Jamal Carnette, CFA (Alphabet): Despite negative headlines, Alphabet continues to dominate its primary business of digital marketing. According to eMarketer, Alphabet and Facebook control approximately 55% of the U.S. digital advertising market, which is expected to grow approximately 20% this year. This industry will continue to grow at a rapid clip as brands shift from print and television advertising, directly benefiting Alphabet.

Still, Alphabet shares are down 2% this year on fears of increased government regulation, but that's a simplistic and myopic viewpoint. Regulation often has an upside for incumbent market leaders because it discourages new entrants, which typically lack the capital to comply. It's likely regulation would benefit Alphabet in the long run.

The reason Alphabet is a decade-long buy, however, has more to do with the company's secretive X technology lab. Here, Alphabet houses its high-risk, high-reward "moonshot" projects with long runways for growth. Recent results show these projects are bearing fruit, with three of them -- Loon, Wing, and Malta -- well on their way to becoming independent businesses. Alphabet is well situated to grow in the short term through the expansion in digital advertising and in the long term via its Alphabet X technology breakthroughs.