Investors looking for stocks to buy and hold love companies with robust growth and stellar profits. But to call them "forever stocks," they need more than this. It's one thing to buy stock in a company with a three- to five-year positive outlook. But holding for a lifetime (a good holding period, by the way) requires a crucial element: staying power.
According to JMP Securities' estimates, 10 million people opened brokerage accounts in 2020. And we know that Robinhood alone signed up 3 million new accounts in just the first four months of the year, meaning this upstart brokerage likely grabbed an unfathomable amount of market share for the full year. It also means the financial firm likely has more than its share of novice investors and they have earned a reputation for buying what have come to be called Robinhood stocks.
What are Robinhood stocks? They're the companies these stock market novices are gravitating toward. The company lists the 100 most popularly held stocks on its platform, and there are definitely some names on the list that illustrate well why these users are considered novice investors. But Robinhood investors don't get enough credit for making some great picks too, and some of their favorite stocks have superb staying power.
Tipping my hat to these great ideas from these investing newbies, here are five Robinhood stocks that you can buy and hold forever.
It's hard to imagine life without coffee. Barring some caffeine-deprived dystopian future, Starbucks (SBUX -0.33%), the world's largest coffee purveyor, should still be serving up daily cups of java. Despite its already massive scale (almost 33,000 locations), it intends to open 22,000 stores more by 2030, making it the largest restaurant chain on the planet. That's awfully impressive growth for a company this size.
Here are other big-picture reasons I like Starbucks as an investment. First, the company has been profitable every year since going public, including 2020 and all the challenges the pandemic created that year. Second, in its almost 30 years as a public company, same-store sales have increased in all but three years, showing its enduring popularity and ability to grow revenue. And third, Starbucks is paying a steady, growing dividend that should just keep making this investment sweeter over a lifetime, especially if you use a dividend reinvestment plan (DRIP).
More and more, cash plays a diminishing role in payment transactions, and that benefits companies like PayPal Holdings (PYPL -1.77%). Since the company became a stand-alone entity in 2015, its total payment volume (how much money is flowing through its system) has more than tripled to $936 billion in 2020. And because of how it's structured, the company has been able to turn this into an impressive free-cash-flow machine.
PayPal's management uses its cash flow in shareholder-friendly ways. Since 2015, it's repurchased around $8.5 billion of its own stock. But it's also spent about that much to acquire other companies, like when it purchased automated online coupon code organizer Honey in 2019, helping its business to continue growing.
PayPal is poised to continue this expansion. The company just laid out five-year goals at its investor day presentation: It has a clear path to $50 billion in annual revenue in 2025 (up from just $21.5 billion in 2020) along with $10 billion in free cash flow (up from just $5 billion in 2020). And from now until then, it hopes to generate $40 billion in total free cash flow, returning $12 billion to $16 billion to shareholders through buybacks. As you can see, this strong business is only getting stronger as secular tailwinds propel it.
It's not easy being a discount retailer, but Walmart (WMT 0.61%) might do it better than anybody. The stock has slightly lagged the market, but it's still returned around 230% during the past decade when including dividend reinvestments. The company has built a value-creating empire by giving consumers what they want: a huge selection, conveniently located stores, convenient store hours, and low prices. Now that it's at maturity, it's hard to envision any brick-and-mortar retail chain dethroning Walmart in my lifetime.
I don't think an e-commerce operation could disrupt it, either. Consider that while Amazon's revenue is up more than 900% over the past decade, Walmart's revenue has modestly increased during that time, too. In other words, Amazon was never the Walmart-killer some assumed it would be. Walmart survived the e-commerce revolution and should continue chugging along.
The retailer may even be ready to turn the tables as the e-commerce shift enters the age of omnichannel operations (the blending of physical retail with e-commerce). With its new competitively priced subscription service called Walmart+, consumers enjoy some of the same benefits of e-commerce such as free and fast shipping. But they also get the convenience of a nearby store for returns and a network of gas stations at which they get discounts. In short, Walmart is ready to keep competing.
The companies in this list have staying power, but Walt Disney (DIS 1.22%) may have the widest moat of them all, thanks to its unrivaled intellectual property (IP). Iconic Marvel characters like Iron Man were created in the 1960s, yet toddlers somewhere will be tucked in tonight with Avengers bedsheets. Star Wars came out in the 1970s, yet the spinoff series The Mandalorian currently lights up social media on a weekly basis. Heck, Mickey Mouse himself is almost 100 years old, but it is still relevant for kids worldwide.
The strength of its IP has propelled Disney+, Disney's paid-subscription streaming service, to incredible heights in record time. Before launch, management hoped to have 60 million to 90 million subscribers by 2024. It's already surpassed that in just one year, with 95 million as of the first quarter of 2021. This part of the business has stabilized the company as the box office and theme parks have been challenged by the pandemic.
With coronavirus vaccines rolling out, all of Disney's business segments should soon be back and thriving. And I expect the company will keep finding ways to leverage its vast library of characters and stories to provide a variety of entertainment options for consumers forever.
Travel platform Airbnb (ABNB 0.15%), founded in 2007, is the youngest company on this list. But even though it's in its infancy, I still believe it can be a forever stock. In its short lifetime, it's already achieved what some companies will never do: Airbnb has become a verb. It's a new word suggestion for the Collins English Dictionary, with an example of "We're Airbnb-ing in Paris." This is an incredible testament to its brand recognition, and that'll be hard to ever take away, even if there are other players in the space.
With the company's name already a pseudo-verb, it's no surprise that Airbnb management said it didn't have to pay any money to acquire 91% of the traffic on its platform. Traffic is coming in organically through direct and unpaid channels thanks to its top-of-mind status. The coronavirus makes last year's numbers hard to contextualize. But consider that the company only had 54 million active bookers in 2019. This leaves plenty of room to grow as adoption increases for this relatively new way to travel.
As long as Airbnb keeps executing, it can stay the top dog. And since the travel industry is a multitrillion-dollar market, it's hard to imagine this growth stock hitting a hard ceiling even if you have a forever holding period.
Three cheers for Robinhood investors
These five companies are all stocks that can reward shareholders long term. Starbucks, PayPal, Disney, and Airbnb all can beat the market, I believe. Walmart might trail the market average, as it has over the past decade, but it's still a solid company with upside.
I advocate for as long a holding period as possible when investing in stocks. And these companies have enduring competitive advantages. But even if you intend to hold forever, it's still important to periodically check in with your stocks to make sure your investment thesis still holds true. Even the strongest companies can eventually be disrupted and, if things get bad enough, might warrant selling. Buy, hold -- and check in now and then.