Every investor needs a group of core stocks that they can count on to deliver over the long term. These are the kinds of companies that create generational wealth, perform in both good times and bad, and possess proven track records in addition to a reliable set of sustainable competitive advantages.
If you're looking for stocks you can build your portfolio around, keep reading to see why these three Motley Fool contributors recommend Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Disney (NYSE:DIS), and Nike (NYSE:NKE).
Betting on Buffett
Dan Caplinger (Berkshire Hathaway): I've built my own personal portfolio around Berkshire Hathaway, and it's been both a lucrative choice and one that's helped give me more diversification than I could ever expect from a single investment. Berkshire has a host of huge wholly owned businesses, including the company's namesake commercial insurance operations, GEICO consumer insurance, the Burlington Northern Santa Fe railroad, Dairy Queen's restaurant chain, and the Fruit of the Loom apparel manufacturing company. At the same time, Berkshire also has an impressive portfolio of publicly traded stocks that include some of the most important companies in their respective industries, ranging from technology and financials to industrial companies and consumer goods businesses.
With billionaire investor Warren Buffett still at the helm, Berkshire has put the assets in place to ensure the company's survival even after the 88-year-old CEO is no longer able to lead it. Berkshire's stock doesn't pay a dividend, but that just means less taxable income for investors who are still in the accumulation phases of their lives. Meanwhile, Berkshire retains the reputation that gives it access to amazing investment opportunities, such as the most recent offer of $10 billion in financing to help Occidental Petroleum finance its buyout bid for Anadarko Petroleum. I'm comfortable having Berkshire as the cornerstone of my portfolio, and it makes a great choice for those seeking diversified exposure in a single stock.
Adapt and thrive
Daniel Miller (The Walt Disney Co.): If you're looking to build your portfolio around a core group of stocks, it would be wise to look for stable, profitable companies poised to do well over the long-term. Few stocks match those requirements as well as media and entertainment juggernaut Walt Disney Co., which owns some of the world's most recognizable characters, theme parks, film studios such as Pixar, Marvel and Lucasfilm, as well as ESPN.
The core reason investors can build a portfolio around Disney stock is that the company is successfully transforming its business to thrive alongside the ongoing media industry evolution. Perhaps the brightest spot will come from its Disney+ service, which launches in late 2019 and is expected to lose money until it becomes profitable in 2024. Disney is hoping to rope in between 60 million and 90 million subscribers within those five years. For context, management expects ESPN+ to have 12 million subscribers by 2024 and for Hulu, which Disney now controls, to have 40 million. Even if unprofitable early on, Disney should immediately challenge top streaming services.
Though Disney's moves to capitalize on its well-recognized and highly popular content in its new streaming service are important, what's more impressive has been its ability to monetize its characters and content over multiple platforms. For instance, Disney doesn't just make blockbuster Star Wars movies, but it also creates attractions such as its upcoming Star Wars Land, which will be in two U.S. theme parks. And Disney isn't stopping there, with plans to spend roughly $24 billion on major theme park and resort expansions over the next five years.
Disney has positioned itself as an entertainment giant with an incredible brand and a long list of popular film studios and characters. As it enters the world of streaming content, it's definitely a company you could build your portfolio around. Disney isn't going anywhere.
The heart of a champion
Jeremy Bowman (Nike): Nike combines one of the world's best-known brands with a highly profitable business model and operates in an industry that sees consistent growth around the globe.
Sports has an enduring popularity in nearly every corner of the world, and Nike has capitalized on that opportunity more than any other company through clever marketing campaigns, top-notch products, and sponsorships of widely admired athletes including LeBron James and Serena Williams.
Nike's results are self-evident: The stock has returned more than 45,000% since its 1980 initial public offering, and is up roughly 500% over the last decade. It began paying a dividend in 1989 and the company says that the annual dividend rate has increased since 2004. Nike's dividend yield is modest, at just 1% today, but so is its payout ratiom as barely a third of profits go to quarterly payouts, meaning the company has plenty of room to continue raising its dividend.
In recent years, Nike has parried challenges from Under Armour and Adidas and continues to put up steady growth. Through the first three quarters of the year, revenue increased 9% to $28.9 billion, and operating income was up 11% to $3.5 billion as the company's Consumer Direct Offense, its new strategy to focus on direct-to-consumer sales and flagship experiential stores, has delivered results.
As the emerging middle class in places like China and India start spending more on things like footwear, sportswear, and gear, Nike will be there to capitalize on the long-term opportunity in sports.
Editor's note: This article has been corrected to say that Nike started paying a dividend in 1989.