Holding a stock for 10 years may sound crazy to some, but your job as an investor is exponentially easier if you can commit to holding this long. Consider that you can pick a great stock and have a well-researched and accurate investment thesis. But if you're only planning to hold for a year and then the market crashes, it's likely your fundamentally sound stock pick will go down with everything else.
According to data compiled by The Balance, the worst return for any rolling 10-year period ever for the S&P 500 was negative 3%. Therefore, if history is any indication, it's extremely likely stocks will be generally higher 10 years from now. Any potential crashes between now and then will likely be wiped out by bull markets.
Of course, a lot can happen in 10 years. Therefore, it's important to only pick the strongest companies when looking that far out. Here are three stocks I believe are well positioned for the coming decade.
Floor & Decor
This is under the radar for many investors, but Floor & Decor Holdings (NYSE:FND) stock has delivered market-beating performance since it went public in 2017. By specializing in everything pertaining to flooring, the company has an advantage over big-box retailers like Lowe's and Home Depot, which only have space for limited flooring options.
And it has an advantage over specialty companies like LL Flooring (NYSE:LL) (formerly Lumber Liquidators) that have gone with a small-showroom strategy. Most customers want a lot of options they can see and touch, so they go to Floor & Decor. This reality combined with the high cost to ship heavy flooring also insulates the company from any e-commerce disruption.
As a shareholder, I was worried about Floor & Decor as the pandemic took hold. It had never experienced a recession as a public company, and I didn't know what to expect. But I was pleasantly surprised by its results. In 2020, net sales were up 19% year over year, and it grew its store count more than 10%. Importantly, some of this sales growth was thanks to the resiliency of its business with professional customers. In 2020, it had a 74% year-over-year increase in pros enrolled in its loyalty program, which could be a tailwind. Loyalty-program pros spend three times more on average than non-enrolled pros.
Floor & Decor had 140 locations as of the end of the first quarter of 2021, and management intends to open new locations at a 20% growth rate until it reaches 400 locations. If you're doing the math, the company should hit its long-term target within this decade. With all those new stores and continued growth at existing stores, this already profitable company ($195 million in net income in 2020) should be very profitable 10 years from now. And with limited need for additional capital to fuel growth beyond 400 locations, it should be able to reward shareholders via share buybacks and possibly a future dividend.
In short, I believe Floor & Decor is a safe stock to hold for the next 10 years and a strong candidate to double your money or more.
There are two reasons investors should plan on buying and holding Airbnb (NASDAQ:ABNB) for a decade, in my opinion. The first concerns the stock's valuation. Its market capitalization is already over $92 billion. For perspective, if it were in the S&P 500, it would already be among the 100 largest companies. This seemingly puts a cap on how much bigger it can get from here. But the more patient you are, the more opportunity it has to grow.
Furthermore, it trades at a price-to-sales ratio of 23, an expensive multiple that one would expect to contract over the next 10 years as the business matures. In other words, the company will need to grow its revenue a lot to overcome this potential multiple contraction and also deliver market-beating stock performance as well. So again: Give it plenty of time to grow -- it's going to need it.
However, there's a second (and better) reason to hold the stock for the next decade: Few companies are as well positioned to profit from changing consumer preferences in hospitality. For one example, consider that Microsoft just did a survey that showed 46% of workers are considering moving since they can now work remotely. Likely among these mobile workers are the nomads Airbnb is already accommodating on its platform. In the first quarter of 2021, 24% of stays were longer than four weeks, leading management to say travelers are "living on Airbnb." Could this trend just be getting started? Time will tell.
Long-term stays are just one opportunity for Airbnb. But all told, the company believes its market opportunity is worth $3.4 trillion. Consider that most of the traffic it gets comes in organically, showing it has top-of-mind brand presence. This gives me confidence it will indeed grow its revenue dramatically over the coming decade.
Lastly, if you're looking for a company with an outsize opportunity over the next decade, consider fintech stock Square (NYSE:SQ). Generally speaking, Square stands to benefit from the digitization-of-cash trend. More and more, people are looking for the cashless solutions the company offers. And with two major business segments addressing both business and consumer needs, it has lots of optionality to grow its addressable market for a long time.
For example, consider Square's recent launch of Square Messages for merchants. Consumers don't want to call businesses. They want to communicate the same way they do with their friends: by messaging. Square Messages allows this direct communication between business and customer via email or text while integrating it into its customer management software. It's hard to quantify the monetary boost to Square's business, but it's a good example of how the company is continually launching relevant services for its customers, keeping itself in the center of their lives.
Of course, being willing to try new thing also means it's willing to take risks. For example, in March the company announced it was acquiring a majority stake in music platform Tidal, coming with an almost $300 million price tag. CEO Jack Dorsey says it will allow Square to enable artists to better monetize their music, which sounds noble. But at the price it paid, it's hard for me to imagine how this acquisition will pay off.
Then again, Square's efforts in Bitcoin didn't always make sense, either. But in hindsight, it's pretty clear the company has gained a ton of users by offering Bitcoin services basically at cost. So I'll give it the benefit of the doubt when it comes to Tidal. Moreover, I'll be watching intently to see what lever it pulls next -- the company has nearly $6 billion it could use on acquisitions.
I like Floor & Decor, Airbnb, and Square for the long haul, but I'm not sure which one I believe has the most upside today. However, that's not something I'm worried about. Over the next 10 years, I have a high degree of confidence they will make their shareholders money. That's why I chose to diversify across all three rather than concentrate my investing dollars in just one.