When scouting around for suitable investment choices, it's important to have a mental picture of what you're looking for. You should always endeavor to own a stock for at least five years, if not longer. This is the minimum amount of time required for a company to execute growth strategies and for the effects to show up in the financial numbers. Ideally, you should hold onto a great stock for decades if the investment thesis remains valid.
Key attributes to look out for in a long-term holding include a brand name that is both recognizable and evokes positive sentiment, a long and consistent track record of continuous growth, the payment of a rising dividend, and a capable and driven management team. Perhaps surprisingly, there are many companies that fit these criteria. The key, however, is in holding on tightly to your stocks even as they continue to soar to new heights and create the temptation to lock in the profits by selling.
These three companies have what it takes to stay in your investment portfolio for two decades or more.
Image source: Tractor Supply.
1. Tractor Supply: Consistent growth in several metrics
Tractor Supply (TSCO 0.66%) is the largest rural lifestyle products retailer in the U.S. and acts as a one-stop-shop for those who are looking for anything from gardening products to heavy farming equipment. The company has shown remarkable resilience with regards to the COVID-19 pandemic, as evidenced by its recent third-quarter 2020 earnings report. Net sales jumped 31.4% year over year, with comparable-store sales growing by 26.8% year over year. Net income grew by 56.1% year over year to hit $190.6 million, and Tractor Supply raised its quarterly dividend from $0.35 to $0.40 per share.
Over the last five years, the company has been consistently growing both its revenue and dividend without fail. Net sales rose from $6.2 billion in 2015 to $8.4 billion in 2019, while dividend per share went from $0.76 to $1.36 over the same period. Along the way, Tractor Supply has been consistently opening more stores and chalking up positive comparable store sales. The number of stores (both Tractor Supply and Petsense) went from 1,488 at the end of 2015 to 2,024 at the end of 2019.
Along with its earnings, Tractor Supply also announced its new "Life Out Here" strategy that aims to focus on key pillars such as customer experience and continuous product improvement to drive long-term growth and value for shareholders. This strategy is anchored on five tenets and includes omnichannel marketing initiatives and the digitalization of business processes. Though still in its infancy, the successful implementation of these initiatives will ensure that the company enjoys sustained multi-year growth far into the future.
2. Visa: Growing net revenue and dividends
You walk into a store, pick up an item, and stand in line while waiting to pay for it. The customer in front of you asks the cashier if they accept Visa, and the reply is always in the affirmative. What's striking is that the person is using the word "Visa" when they should be saying "credit card." That's how synonymous the two terms have become and it illustrates the power of the Visa (V 0.04%) brand in the minds of consumers.
The financial services company is going through a tough patch right now as the pandemic has depressed spending, while border closures have led to plunging cross-border transaction volumes. For the third quarter, the volume of payments and processed transactions fell by 10% and 13% year over year, respectively. Total cross-border volume is still down by 37% year over year, as the pandemic has yet to be brought under control in most parts of the world.
Visa, however, has a strong enough brand name and track record that it should be able to eventually overcome these challenges. One positive effect of the pandemic is that it is pushing many countries and businesses to accelerate the adoption of digital payments, thereby benefiting Visa's business of facilitating digital payment transactions. The company has had a sparkling track record of growing its net revenue and dividends over the last five years, too. Aside from the blip that COVID-19 will cause this year, I am confident that Visa can return to growth again thereafter.
Facebook CEO Mark Zuckerberg speaks a recent F8 Conference. Image source: Facebook.
3. Facebook: A commanding social media market share
As more people hunker down at home to avoid catching the coronavirus, social media companies such as Facebook (META 3.15%) have seen increased usage of their services. Facebook is the dominant social media company and it owns brands such as Instagram and WhatsApp. The company has been successfully growing its daily and monthly active user base over the last several years. Daily active users grew from 1.2 billion at the end of 2016 to around 1.66 billion by the end of 2019, while monthly active users went from 1.86 billion to 2.5 billion over the same period. As a result of this steady growth, revenue has also been rising year over year since 2015, nearly quadrupling from $17.9 billion to $70.7 billion in 2019.
What makes Facebook a compelling investment is the market share it commands of the social media industry. Advertisers have little choice but to place their ads with Facebook, as there are no competing platforms that offer the same audience reach or as effective ad targeting. This dominance, though, comes at a price, as Facebook faces possible lawsuits related to alleged violations of antitrust laws. It's a fact that investors have to live with, but I am confident that the company can prevail and continue to post consistent growth in the long term.
