3 Great Stocks You Can Buy and Hold Forever

In Warren Buffett's 1988 shareholder letter, he famously said his favorite holding period for a stock is "forever." That should be every investor's goal: to buy stock in great companies and hold onto those shares. Of course, forever doesn't actually mean forever; it means until you reach whatever milestone that caused you to start investing -- like retirement or the purchase of a new house.

I think companies like Adobe Systems (ADBE -0.27%), Axon Enterprise (AXON -0.74%), and Walt Disney (DIS -0.45%) fit this bill perfectly. Here's why these three great stocks can be in your portfolio "forever."

1. Adobe Systems

Adobe's software-as-a-service (SaaS) offerings span from creative content and digital documents to customer experience management. 

Image source: Getty Images.

Products like Adobe Photoshop for image editing and Adobe After Effects for cinematic graphics are industry standards, as are many of its other Creative Cloud offerings. Adobe also invented the portable document format (PDF), which has since become a global standard. Together, Creative Cloud and Document Cloud represent Adobe's digital media business, and no other company in the world comes close to rivaling its popularity.

Similarly, Adobe Experience Cloud is a suite of AI-powered software tools for analytics, marketing, and commerce. During a recent earnings call, CEO Shantanu Narayen said Adobe's digital experience platform is "years ahead" of the competition. Moreover, the company estimates that the average return on investment for Adobe Experience Cloud is 242% over three years. That's a compelling value proposition.

It's also worth noting that effective marketing demands quality content. That's why the combination of Creative Cloud and Experience Cloud is so powerful. It provides clients with best-in-class software that helps them both design digital media and deliver personalized digital experiences.

Adobe's considerable advantages have powered strong growth, especially for an enterprise with a market cap of $245 billion.

Data source: Adobe SEC Filings. TTM: trailing 12 months. CAGR: compound annual growth rate.

Going forward, digital transformation should drive continued growth for Adobe, as enterprises replace outdated systems with new technologies. Additionally, its strong brand name and best-in-class software have created a deep moat around its business. That should help Adobe fend off any rivals for the foreseeable future.

2. Axon Enterprise

Axon, formerly known as Taser International, provides law enforcement officials with conducted energy weapons (i.e., taser devices), as well as hardware, software, and sensors that help them collect and manage digital evidence, streamline report writing, and access real-time situational data.

Here's an example: Axon Body 3 is a body-worn camera that captures video evidence, which is stored in Axon Evidence, the world's largest cloud-based evidence management system. That data integrates with Axon Records, a software tool that uses artificial intelligence and video evidence to simplify report writing.

Finally, Axon Respond combines live video feeds and GPS locations (from body cameras, fleet cameras, and drones) with voice and text communication channels to create a real-time situational awareness platform. This means police officers, dispatchers, and other safety officials get information more quickly, enabling them to make better decisions during emergencies.

Axon's business benefits from several tailwinds. First, cloud-based software reduces infrastructure costs, simplifies evidence management, and makes law enforcement more efficient. Second, Axon's sensors promote law enforcement safety and transparency, while also enabling the collection of digital evidence.

These tailwinds have helped Axon deliver strong financial results in recent years.

Data source: Axon SEC Filings. CAGR: compound annual growth rate.

Investors should note that Axon's free cash flow was negative during 2020. However, this was due to aggressive investments in its business, as well as the timing of customer payments. Neither of those things is concerning, in my opinion.

Notably, Axon is the market leader in conducted energy weapons, body-worn cameras, and law enforcement software. This has allowed the company to build relationships with about 17,000 police departments across the U.S. -- representing 94% of all agencies. That expansive network of customers is a significant advantage, which should keep Axon ahead of rivals like Motorola.

3. Walt Disney

Disney's entertainment empire spans from cinematic and streaming media to many of the world's most popular theme parks. And at the heart of that empire, one power source has kept the Magic Kingdom sparkling for nearly 100 years: incredible content.

Image source: Disney.

No one has content like Disney. It owns the action-packed worlds of Star Wars and Marvel, as well as animated favorites like Frozen, Toy Story, and The Lion King. In fact, Disney owns 17 of the top 25 grossing movies of all time, including the top two: Avatar and Avengers: Endgame.

This collection of blockbusters, along with new series like The Mandalorian and WandaVision, have driven strong subscriber growth for Disney+, the streaming service that launched in 2019. In 16 short months, Disney added over 100 million subscribers, easily making it the second most popular streaming platform behind Netflix.

But according to eMarketer, Disney may claim the throne in the not too distant future. In 2019, Netflix owned 44% of the streaming market in terms of subscription revenue, but that figure dropped to 36% in 2020, and it is expected to continue falling. By 2022, eMarketer believes Disney and Netflix will be nearly tied at 27.1% and 28.4% market share, respectively. If that trend plays out, I wouldn't be surprised if Disney passed Netflix in 2023.

Investors should note that Disney's revenue declined 6% in fiscal 2020, driven by theme park closures during the coronavirus pandemic. As a result, the company's financial performance in recent years appears underwhelming.

Data source: Disney SEC Filings. TTM: trailing 12 months. CAGR: compound annual growth rate.

However, as lockdowns and social distancing protocols end, pent-up demand should drive strong theme park attendance. Likewise, Disney+ should continue to gain traction as it adds more original content like the upcoming Loki and The Book of Boba Fett, two new series set to launch in 2021. These growth drivers should carry Disney to even greater success in the years ahead.