If there's one thing I've learned over my 21 years as an investor, it's that high-quality businesses often increase in value over time. While recessions and inevitable stock market corrections will occasionally test investors' resolve, the fact is that good companies tend to make investors money, if they're patient -- the key word being "patient."
The problem is that the U.S. and global economy aren't static, nor are the businesses we hold in our portfolios. Business dynamics are constantly changing, which requires investors to regularly review their investment theses in the companies they own a stake in. It's these changing dynamics that often keep investors from holding on to stocks for very long periods of time.
As for me, of the more than one dozen holdings currently in my portfolio, there are three that I have absolutely no intention of ever selling. Though business dynamics are constantly evolving around these three companies, they have all the tools necessary to continue thriving.
Bank of America
First up is bank stock Bank of America (NYSE:BAC), which I bought into back in November 2011. Having an initial cost basis of $5.21 certainly adds to my desire to continue holding, but it's so much more than just a low cost-basis.
For one, Bank of America is arguably the most interest-sensitive of all money-center banks. That means that if lending rates return closer to their historic long-term norms, no bank is going to see a greater boost to its net interest income than Bank of America.
On the flip side, BofA has undertaken significant cost controls in recent years. Noninterest expenses have declined because of, among other factors, the closure of physical bank branches. In an attempt to minimize transaction costs, as well as reach a new generation of consumers, Bank of America has instead been focusing its efforts on digital banking and mobile apps. And it appears to be paying off, with the company counting over 38 million digital customers as of year-end 2019, and 29% of all consumer sales deriving from its digital banking segment.
Money-center banks also benefit from the fact that the U.S. economy spends far more time expanding than contracting. Given that banks like BofA are cyclical, this allows them to benefit from the bread and butter of banking growth -- i.e., deposit and loan growth. Low- to mid-single-digit deposit and loan growth has sort of become the long-term expectation for most money-center giants like BofA.
Lastly, I appreciate what management has done to reward shareholders following a very rough time during the Great Recession. Bank of America's past two years have yielded a combined $63 billion in capital returned to shareholders via buybacks and dividends. That's a return policy I can certainly get behind.
Cancer-drug developer Exelixis (NASDAQ:EXEL) is another company that I have absolutely no intention of ever selling. Although I've held a position in Exelixis since March 2014 and have an exceptionally low cost-basis, there's plenty to like about where Exelixis is headed.
To begin with, Exelixis is expected to lean on blockbuster drug Cabometyx for years to come. Cabometyx is still the only therapy to achieve the "trifecta" of a statistically significant improvement in objective response rate, progression-free survival, and overall survival, in second-line renal cell carcinoma (RCC), and has since expanded its label to include first-line RCC and advanced hepatocellular carcinoma (HCC). In just RCC and HCC alone, Cabometyx has the potential to consistently deliver north of $1 billion in annual sales.
But Exelixis isn't sitting on its hands. The company has reignited its internal growth engine and is working on a number of combination studies involving its in-house therapies, including Cabometyx. In fact, it's working on a late-stage study with key rival Bristol-Myers Squibb that's examining a combination of Cabometyx with immunotherapy Opdivo in patients with first-line RCC. If this combination therapy proves effective (a readout is expected soon), Exelixis could solidify an even larger share of the RCC market.
This company is also an underrated cash cow. Exelixis ended September with $1.2 billion in cash and cash equivalents (that's almost 23% of its current market cap), and even with more aggressive spending tied to research and development it could have the opportunity to generate well over $400 million in annual free cash flow moving forward. This cash acts as both a downside valuation buffer and gives the company the flexibility to get aggressive with acquisitions, should it choose.
Finally, I don't foresee myself ever getting rid of my position in telecom and content behemoth AT&T (NYSE:T), which was initiated in December 2018.
There's no denying that AT&T is no longer the growth story is once was. But that doesn't mean this "boring business" can't continue to deliver for shareholders. Aside from the relatively high barrier to entry in the telecom and content space, there are two things I find particularly exciting about AT&T's longer-term growth prospects.
First, there's the ongoing wireless infrastructure upgrade cycle. The rollout of 5G networks, while costly, should lead to smartphone upgrades and a substantive increase in data usage. For wireless companies like AT&T, data is where it generates it bread-and-butter margins. Thus, 5G networks aren't going to lead to a one-time pop in growth for the company, so much as a steady uptick to a new norm in data usage and network reliance.
The other factor I find exciting is AT&T's streaming capabilities. Following its purchase of Time Warner, AT&T now has the CNN, TNT, and TBS networks to dangle as carrots to attract new streaming customers, as well as utilize for added leverage with advertisers.
As icing on the cake, AT&T is quite possibly the safest high-yield dividend stock investors can buy, with a 36-year streak of having increased its payout. I have no intention of selling this income beast.