Although Warren Buffett and Charlie Munger are typically known as value investors, Buffett's longtime business partner once said of the team's investment track record:
We've really made the money out of high-quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money's been made in the high quality businesses. And most of the other people who've made a lot of money have done so in high quality businesses.
In accordance with that, Buffett famously once said, "Time is the friend of the wonderful business, and the enemy of the mediocre."
In that light, when looking for business you can buy and hold for the long term, quality is of the utmost importance.
Of course, quality is a subjective, qualitative measure that doesn't often show up in financial statements, but rather in superior products, services, and, importantly, management's execution abilities and a company's culture. These qualities are reflected in the long-term growth and return on capital a business achieves.
The following three names are some of the highest-quality businesses around, and each also happens to be exceptionally well positioned to capitalize on the big technology trends of the 2020s. Though they may look expensive now, I wouldn't hesitate to add these three top tech stocks to your portfolio today, with an eye toward 2030.
Perhaps no other management team has defied the natural constraints of business over the past 20 years than that of Amazon.com (NASDAQ:AMZN). Consider this: In 2007, the year before the last big recession, Amazon grew its revenue 39% off a $10.7 billion revenue base. Fast-forward to its most recent quarter 13 years later, and Amazon's grew revenue 40% off $322 billion revenue. There aren't too many Wall Street analysts who would have modeled that 13 years ago.
How is Amazon able to continually defy the law of large numbers? It all starts with founder and CEO Jeff Bezos, who has instilled a "day one" mentality within Amazon's culture, which is never afraid to experiment, take risks, and go after huge end-markets with relentless focus on the customer.
Today, even though Amazon has a leading position in both e-commerce and cloud computing, both of which still have long runways ahead, the company continues to innovate and take aim at new market segments. Last week, the company just rolled out its first Amazon Go cashier-less grocery store outside employee campuses in Woodland Hills, California, and also just unveiled a new wearable wristband called the Halo. But these are just a few of the recent innovations Amazon's announced this year, on top of new moves into third-party shipping, healthcare, and electric vehicles.
More than any other large-cap technology company, Amazon should continue to find new markets to disrupt over the long term. While it might seem impossible, the next 10 years could bode extremely well for Amazon shareholders, even though the past 10 years have already been so incredible.
Over the next 10 years, the technology world will continue to push innovation in artificial intelligence, 5G, and the Internet of Things. All of those applications will need smaller, more powerful processors, graphics chips, and memory.
What's remarkable is that the key technology that enables more powerful chip production lies in the hands of a single company, ASML Holdings (NASDAQ:ASML). ASML's journey to commercializing extreme ultraviolet lithography (EUV) took a remarkable 20 years, with initial research beginning in the late 1990s and only reaching a viable machine for high-volume manufacturing in 2016, with the first commercial deployments in 2018 and 2019.
Having just been deployed in commercial settings, EUV is poised to be a huge growth engine for ASML over the next decade and probably beyond. Last quarter, ASML's revenue surged almost 30% and net income was up almost 58%, as EUV sales are making up a larger part of its overall revenue base. Moreover, ASML has raised its dividend 6 times over the past 10 years, and it continues to return cash to shareholders via buybacks as well.
At 55 times earnings, ASML is by no means cheap, but with a clear growth runway for the foreseeable future, a technology monopoly, and a growing dividend, ASML should see its stock continue marching much higher and outperforming the market over the next 10 years.
We are just at the dawn of the 5G era, which promises a revolution in the capability of mobile devices. Ultra-fast, low-latency communications will be key to the next generation of consumer and business technology applications, and 5G also has the possibility of even replacing home broadband for many -- or at least in less densely populated geographies.
That's why another company you can buy and hold for the next 10 years is the "new" T-Mobile (NASDAQ:TMUS). For the better part of the past decade, T-Mobile has been a network laggard behind other large U.S. carriers, butit made up for it by offering customers lower prices, unlimited data, and a whole host of other customer-friendly features that made it a fan favorite. Investors have been happy, too, with T-Mobile outperforming its peers and the broader market over the past decade.
However, in the wake of its merger with Sprint, which occurred on April 1, T-Mobile now has the deepest 5G spectrum portfolio in the wireless industry. Recent studies show that while the 5G rollout is only just beginning, T-Mobile already has a huge lead in terms of 5G coverage.
What's more is that even if T-Mobile can leap ahead of the competition in terms of its network, it's still committed to its low-cost "Un-carrier" value proposition. With just around a 30% share of the U.S. wireless industry, T-Mobile has as combination of a leading network with lower prices that could disrupt wireless and unseat its two main rivals, each of which has a large debt load and high dividend payouts.
T-Mobile is off to a fast start in its first quarter with Sprint, handily beating analyst estimates for net additions and profitability, even during the pandemic-fueled second quarter. I'd expect more of the same this year and over the next decade, as consumers begin to buy 5G phones and take note of which carrier has the best network on which to run them. And if T-Mobile's nascent home broadband alternative ever takes off, shareholder gains could be massive.