Buying and holding stocks for the long run allows the power of compounding to work in your favor. That's what makes an investment that grows at 8% per year return 10 times if left untouched for 30 years. Still, to benefit from the fruits of long-term investing, you will need to identify stocks with good prospects over the very long run.
Walt Disney (DIS -0.12%) and Home Depot (HD 1.96%) fit that description. The House of Mouse has been delighting families for nearly a century, and there's no reason to suspect that it will change in the future. Home Depot, on the other hand, is the leading home-improvement retailer in the U.S., and our homes are going to require maintenance and repairs for as long as we live in them.
The near term may be choppy as each of these companies go through challenges brought on by the coronavirus pandemic. But this is where the discipline of a long-term mindset allows you to hold your investments through adversity.
1. Walt Disney
The coronavirus pandemic is forcing Disney to operate its theme parks at reduced capacity. Since the parks require people to get together in person, it's not going to be back to full force until there is much less risk of contracting COVID-19. Regardless of the time until there is a return to normal, Disney's attractions should pick up right where they left off. What's more, Disney may be able to raise prices at a faster rate because of all the pent-up demand.
Disney is positioning itself to thrive in the post-pandemic economy. Already, its streaming services Disney+, Hulu, and ESPN+ have attracted 146 million subscribers. Moreover, Disney expects the combined streaming services to garner over 300 million paying members by 2024. And those with a long-term mindset can benefit as Disney eventually starts raising subscription rates.
2. Home Depot
In contrast to Disney, business has been booming for Home Depot throughout the pandemic. The home-improvement retailer is benefiting as millions of people spend more time at home -- causing more wear and tear to their homes and highlighting defects that need fixing. Revenue in the first nine months of 2020 was up 18% from the same time a year ago. Investors should not expect that high a rate of increase in the long run. Revenue growth closer to 5.2% over the last 10 years is a more reasonable expectation.
But there is reason to think that sales growth will be at least slightly higher at leat over the next five years. For one, more of the U.S. population will be working remotely for the longer term. Several large companies have announced they will allow some of their staff to work from home at least for a couple of days a week. That should benefit Home Depot as people continue to need more space at home, spend more time at home, and in turn, spend more on repairs and maintenance.
Additionally, upgrades made to outdoor spaces such as gardens, outdoor kitchens, and patios will now require maintenance spending. Barbecue grills will need to be cleaned. Gardens will need to be treated. And patios will need to be cleaned and shielded from bad weather. All of these point to increasing sales at home-improvement stores, and Home Depot is the biggest one.
Home Depot has also proven it can operate its business with excellent profits. From 2011 to 2020, its operating profit margin increased from 8.6% to 14.4%. And earnings per share increased at a compound annual rate of 20.6% over the last 10 years. With its prospects looking brighter and the likely return to share buybacks, investors can expect solid earnings per share (EPS) growth for the long run.
Home Depot and Disney have been delivering excellent returns to investors for several decades, and their futures look brighter than their pasts. Investors looking for two stocks they can buy and hold forever can feel good about buying Home Depot and Walt Disney.