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3 Stocks to Buy and Hold for Decades

By Chuck Saletta, Rich Smith, and Keith Noonan - Jul 21, 2019 at 4:15PM

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It takes a few decades for compounding to work its wealth-building magic.

Investment wealth is built over time. Compounding takes decades, but when it kicks in, it can turn ordinary cash into extraordinary wealth. As an investor looking to take advantage of that power of compounding, it would be incredibly helpful to know of companies that look like they'd be worth holding onto for the long haul necessary to make it work.

With that in mind, we asked three Motley Fool contributors to each select a stock they felt would be worth buying to hold for decades to come. They came up with Lockheed Martin ( LMT -0.23% ), Take-Two Interactive ( TTWO 1.76% ), and Omega Healthcare Investors ( OHI -0.35% ). Read on to find out why and help yourself figure out whether they may be worth a long-term slot in your own portfolio.

Man on a staircase made of money, looking through binoculars towards the future.

Image Source: Getty Images

This defense contractor could hold the secret to the future of energy

Rich Smith (Lockheed Martin): Several times in the past, I've made the case that Lockheed Martin is a "safe stock" to hold for "decades." I still believe this to be the case -- although my reasons are changing.

Lockheed Martin owns the franchise to build F-35 stealth fighter jets for the U.S. military and its allies. With the F-35 expected to fly well into the 2060s, I figure that business alone should be good for another 40 or 50 years -- and with LockMart stock selling for only about 18 times earnings (the rest of the S&P 500 is averaging closer to a 22 P/E), paying a 2.5% dividend yield, and growing at 14%, I suspect now is as good a time as any to buy it and hold it.  

What really gets me excited about Lockheed Martin stock for the long term, though, is the company's far-thinking research into a new form of clean energy -- cold fusion -- coupled with the knowledge that this $100 billion company has the financial resources to make a serious attempt at the project.

I first started writing about Lockheed's cold fusion aspirations five years ago, when Lockheed said it hoped to have a working cold fusion reactor inside of a decade. Here at the halfway mark, Lockheed just confirmed that it's on its fourth iteration of a test reactor at Skunk Works -- and very close to halfway toward its goal.  

If Lockheed can progress the rest of the way toward its goal, there's a non-zero chance that the company will end up with patents on a fuel source that could put an end to future "energy crises" and "global warming" crises as well -- all in one fell swoop. While failure is certainly an option, I think the potential reward for success makes Lockheed a stock worth owning for the long term.

Play the long game

Keith Noonan (Take-Two Interactive): Video game stocks have faced pressures over the past year, with many of the industry's leading companies seeing their share prices slashed as the market has reassessed growth outlooks and risk factors. Take-Two Interactive has fared better than competitors Activision Blizzard and Electronic Arts, largely because of strong performance for its titles, but it hasn't been immune to the more cautious sentiment that has emerged. However, this pullback has provided long-term investors with a discounted opportunity to stake a position in the future of interactive digital entertainment -- and Take-Two continues to look like one of the best plays in the space.

While the music and home-format video businesses were disrupted by piracy and streaming in the age of high-speed internet, the video game industry has benefited greatly in the age of digital distribution. Because many games are run through servers now, it has made piracy even more difficult. The shift to full-game downloads has edged out brick-and-mortar middlemen, and digitally delivered content updates provide cost-effective ways to keep players engaged and spending on hit titles. 

Take-Two continues to capitalize on these trends while also strengthening its catalog of hit series. The company has built its NBA 2K franchise into the premier basketball video game series, crushing NBA Live from Electronic Arts. NBA 2K is also currently the best-selling sports game franchise in North America, having wrestled the title from EA's Madden NFL series. Take-Two's Grand Theft Auto continues to be a powerhouse and has been one of the entertainment industry's most successful properties for nearly two decades. The company also solidified Red Dead Redemption as another blockbuster franchise, going on to become the best-selling game of 2018.

As Motley Fool contributor John Ballard has stated, Take-Two is managing to do more with less. The company's smart use of resources and strong franchise catalog, combined with a long runway for expansion in the overall gaming market, make it a growth stock worth owning for decades.

A company well positioned for demographic trends

Chuck Saletta (Omega Healthcare Investors): According to U.S. Census Bureau projections, by 2035 there will be 78 million Americans age 65 and older, compared with 76.7 million below age 18. That combination of trends means that there will be a larger number of older people around, with fewer younger ones to take care of them.  The implication is that there will be an even greater need for professional care than there is today.

That bodes well for Omega Healthcare Investors, a real estate investment trust (REIT) focused on skilled nursing and assisted living facilities  that typically provide that care for the aged. Its role as a "triple-net equity REIT"  is to own the facilities and lease them out to the operators that actually run the business of caregiving. That niche makes Omega Healthcare Investors more an infrastructure player than a caregiver, giving it some ability to ride out many issues that may affect those that lease its buildings.

Indeed, Omega Healthcare Investors is currently working through issues at some of its operators, and while the operators' issues do flow through somewhat, the company remains solid overall. Through it all, the company has been able to maintain its dividend at $0.66 per share per quarter, for a whopping 7% yield,  despite the challenges at a handful of its tenants.

While that dividend can only be sustained if its other tenants continue to pay their bills, the company's overall stature looks solid. It has a debt-to-equity ratio below 1.2 and a current ratio above 2.1, and it's still turning in hundreds of millions in annual profits, despite those challenges at some of its customers. That the company can manage though those issues today and still show a profit bodes well for the future, when demographics will be even more in its favor.

That combination makes it worth considering as a company worth owning for decades to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
$339.17 (-0.23%) $0.79
Take-Two Interactive Software, Inc. Stock Quote
Take-Two Interactive Software, Inc.
$167.29 (1.76%) $2.89
Omega Healthcare Investors, Inc. Stock Quote
Omega Healthcare Investors, Inc.
$28.51 (-0.35%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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