When the markets get turbulent -- which they inevitably do -- it's good to own stocks you can count on to make it through the tough times and keep growing in value over time. Most importantly, a stock you want to hold forever will give you the confidence to add more shares to your holding when everyone else is selling at the bottom.
I like to mix it up with my portfolio -- buying some stocks I expect to generate returns in the next few years but investing most of my funds in "forever" stocks that I believe will keep compounding in value over decades. Brookfield Asset Management (BN -0.36%), Activision Blizzard (ATVI), and PayPal Holdings (PYPL -0.90%) are three of my favorite stocks I intend to hold forever.
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Owning Brookfield makes me feel like a master real estate investor
Brookfield Asset Management is one of the world's largest investors and operators of real assets -- office buildings, utilities, gas pipelines, renewable power, retail centers, and other business services. The company has $365 billion of assets under management, which have doubled over the last five years and may double again over the next five.
The company's modus operandi is to attract money from institutional investors and use that money to buy real assets, like the ones mentioned above, at value prices. Management seeks to generate a return between 12% and 15% over time on its investments, and over the last 20 years, it has more than delivered on that pledge with an annualized return of 17% as of Feb. 13. An investment of $1,000 in the stock made 15 years ago would be worth $8,325 today, including dividends.
One reason Brookfield Asset Management is such a strong forever stock is that management targets acquisitions that are long-life and high-quality, meaning the assets generate steady cash flows and provide an essential service to society that will likely keep these businesses around for decades.
Another reason is that institutional investors are seeking higher returns than bonds and have been shifting billions of dollars to real asset funds over the last few decades. Brookfield management believes institutional investors are still underallocated in real assets and will allocate up to $40 trillion into these alternative funds by 2030. This provides a tailwind for Brookfield's growth and ensures that management has a steady stream of cash to stay active in scooping up valuable properties at good deals to drive returns for shareholders.
A cash-rich gaming empire
One way to hunt for good stocks is to think about where young people are spending more of their time and money. Over the last few decades, the percentage of Americans who spend time playing games has risen by about 50%, according to the Bureau of Labor Statistics. This has fueled an increase in the amount of money people spend on game content; spending increased by 66% between 2010 and 2017 to reach $29.1 billion.
On the popular game streaming site Twitch, Activision Blizzard typically has more games in the top 10 trending list than any other game maker. Those games are usually Overwatch, World of Warcraft, and Hearthstone. The company had 345 million monthly active users in the first quarter spread across all its games, which also includes the hit mobile franchise Candy Crush.
Activision recently hit a soft patch in player engagement. The stock is down, but this is giving investors the chance to own one of the largest and most profitable game companies at a discount. Over the last year, Activision Blizzard generated $1.59 billion in free cash flow and recently increased its annual dividend payout for the ninth consecutive year.
10.5 billion digital payment transactions and growing
The shift to digital payments has fueled market-beating gains in stock prices for several companies that operate in the space, but PayPal is my favorite mobile payment stock. It has a sizable and growing customer base of 277 million. The total value of all payments made across PayPal's various services totaled $608 billion last year, and the total payment volume continues to grow at around 25% per year, excluding currency changes.
Since separating from eBay in 2015, PayPal stock is up 202%, but this is just the beginning of what should be a very rewarding long-term growth story. Customer engagement is continuing to increase, which provides a bonus to the company's growth in transactions. One of the reasons for the increase in engagement is PayPal's growing roster of 22 million merchants that offer PayPal at checkout, and the company continues to sign new deals, including with fast-growing e-commerce platforms like Facebook's Instagram, Mercadolibre, and Uber Technologies.
PayPal has only scratched the surface of its potential. In addition to new partnerships, the company is just beginning to monetize the explosive growth happening with Venmo, a peer-to-peer mobile payment app that continues to grow in popularity.
