Warren Buffett once told investors that his favorite holding period for a stock was "forever." It might seem tough to find "forever" investments in today's volatile market, but there are still plenty of stocks that should generate solid returns over the next five decades. Today, a trio of our Motley Fool investors will examine three stocks that fit the bill -- Microsoft (MSFT 1.82%), Boeing (BA 0.25%), and Zoetis (ZTS 3.30%).
Check out the latest Zoetis, Boeing, and Microsoft earnings call transcripts.
An evolving tech giant
Leo Sun (Microsoft): Microsoft's future looked grim just a few years ago. The company had become too dependent on its Windows and Office cash cows, it lost the mobile market to iOS and Android devices, and it made reckless acquisitions in a bid to catch up.
Image source: Getty Images.
Yet Satya Nadella, who took over as Microsoft's CEO in 2014, turned around the tech giant by aggressively expanding its cloud services, killing off Windows Phone, and launching new Surface hardware devices to spark a form factor revolution across the stagnant laptop market.
Nadella's efforts were initially costly, but they turned Microsoft into the world's second largest cloud infrastructure player after Amazon (AMZN 3.43%). Last quarter, Microsoft's commercial cloud revenue -- which include Office 365, Dynamics, and its cloud platform Azure -- surged 48% annually to $9 billion, or 28% of its top line.
Its Surface, Gaming, and Search Advertising revenues also posted robust sales growth and helped offset its ongoing decline in its Windows OEM revenues. Analysts expect its annual earnings to grow at an average rate of 14% over the next five years -- which is an impressive return for a 43-year-old company.
Those growth engines should keep firing on all cylinders over the next decade, and give Microsoft sufficient cash flows to stay ahead of the tech curve. The company's $128 billion in cash, cash equivalents, and short-term investments also ensures that it can keep acquiring smaller companies, buying back stock, and paying dividends. This makes Microsoft, which remains the 800-pound gorilla in PC software, a top stock to own for decades instead of quarters.
Take your portfolio into the sky
Dan Caplinger (Boeing): The aerospace industry has done extremely well for several years, and one of the biggest beneficiaries of favorable trends in the space has been Boeing. The company is one of just two manufacturers of large commercial aircraft in the world, and it has been doing a good job of competing against archrival Airbus to score major orders from airlines seeking to modernize their fleets to keep up with their competitors. Multiple rollouts of new and updated models have helped Boeing attract new orders, and internal efforts to boost production have helped the aircraft manufacturer keep up with demand.
Boeing has also sought ways to expand its dominance of the industry. Rather than relying on third-party suppliers for key parts, systems, and components, Boeing has expanded its own in-house internal production of those items. That's not only led to cost savings, but it has also made it easier for the company to fulfill its delivery commitments. Boeing is likely to keep working to bolster its size with key acquisitions of suppliers.
The biggest threat to Boeing in the short run is the fact that the stock has already soared in recent years, and even though signs of a cyclical top haven't yet appeared, it's tough to predict when a turn in the market will come. For the long run, though, the need for air travel seems likely to only grow further in the coming decades. That makes Boeing a smart long-term buy, and shareholders should enjoy good gains between now and 2070.
An animal health leader for the long haul
Maxx Chatsko (Zoetis): Most investors have probably never heard of Zoetis, but it's a $45 billion behemoth with a bulletproof niche: developing medicines for animals. The business, formerly the animal health unit of Pfizer, completed the largest initial public offering since Facebook in 2013 -- and it hasn't looked back since. Shares have delivered a total return (stock performance plus dividends) of 216% stretching back to their debut, which is exactly double the 108% total return of the S&P 500 in that span.
Image source: Getty Images.
Zoetis develops and markets medicines for animals including cats, dogs, horses, cattle, pigs, and even fish (for aquaculture). It's big business, too, especially when the acquisition-aggressive strategy deployed by management is factored into the equation. The company reported full-year 2018 revenue of $5.8 billion and earnings before income taxes of $1.7 billion. That represented year-over-year growth of 10% and 11%, respectively.
While initial guidance expects that momentum to slow slightly in the year ahead, investors can never discount the possibility that an acquisition or two might change that. Nonetheless, management called for full-year 2019 revenue of about $6.24 billion and diluted earnings per share (EPS) in the neighborhood of $2.91. That would represent year-over-year growth of 7% and about 0%, respectively.
Even if earnings growth takes a break in 2019, the long-term future of the company is bright. Zoetis is bringing new biologic drugs -- yes, biologics for animals -- to the market this year, including Cytopoint for treating skin conditions in dogs. It has a collaboration with Regeneron Pharmaceuticals to continue on that front. It recently acquired Abaxis for $2 billion, which boosts its presence in the fast-growing market for point-of-care diagnostics. And it's well-positioned to capture the incredible growth opportunity represented by global aquaculture.
Simply put, Zoetis has a rock-solid foundation to build upon and multiple high-value shots on goal to carry it well into the future.
