The legendary investor Peter Lynch once said, "Everyone says they're a long-term investor until the market has one of its major corrections." That scenario is clearly unfolding right now, as the bulls who had grown accustomed to the market's cushy returns throughout 2020 and 2021 are being tested by inflation, rising interest rates, and other macroeconomic headwinds.
These kinds of gut-churning downturns separate the true long-term investors from the bull market geniuses. They also cast a spotlight on the kind of stocks you should hold for 20 years instead of 20 months. These three evergreen stocks fit that profile: Procter & Gamble (PG 0.68%), LVMH Moët Hennessy (LVMUY -0.11%), and Walt Disney (DIS 0.18%).
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1. Procter & Gamble
Procter & Gamble is the consumer staples giant that serves 5 billion consumers across 180 countries with 65 evergreen brands -- including Tide, Mr. Clean, Pampers, Tampax, Charmin, Bounty, Gillette, Oral-B, Head & Shoulders, Pantene, Olay, and SK-II. P&G has continuously optimized its portfolio with acquisitions and divestments, and its organic sales growth has remained broadly stable throughout economic downturns as it consistently plowed its free cash flow back into buybacks and dividends.
That resilient business model makes P&G a great long-term investment. Over the past 20 fiscal years, its annual revenue grew at a steady compound annual growth rate (CAGR) of 3.4%, as its core earnings per share (EPS), which reflects the growth of its continuing operations while excluding one-time expenses, rose at a CAGR of 1.3%.
P&G has raised its dividend annually for 65 straight years, which makes it a Dividend King of the S&P 500. After reinvesting all those dividends, it's generated a total return of more than 700% over the past 20 years. It's also reduced its share count by about 7% over those two decades.
Past performance never guarantees future gains, but P&G should remain a safe-haven stock in this volatile market, continuing to grow at a similar clip over the next few decades. It still trades at a reasonable 23 times forward earnings and pays a decent forward yield of 2.5%.
2. LVMH Moët Hennessy
LVMH, the world's largest luxury company, is another recession-resistant stock. The French conglomerate owns 75 houses across five different sectors -- wines & spirits, fashion & leather goods, perfumes & cosmetics, watches & jewelry, and selective retailing -- and its top brands include Louis Vuitton, Dior, Fendi, Loewe, Bvlgari, Tiffany & Co., Hennessy, and Sephora.
Between 2001 and 2021, LVMH grew its annual revenue at a CAGR of 8.7%, even as it endured the Great Recession, a series of financial crises in Europe, and the temporary closures of its stores throughout the pandemic. Its EPS increased at a CAGR of 19.5%. Over the past 20 years, its stock delivered a stunning total return of about 1,100%.
LVMH remained so resilient because its core market of affluent customers are resistant to macroeconomic headwinds. It's also so well diversified that it can usually offset the temporary slowdown of one sector, such as selective retailing during the pandemic, with the growth of its other businesses.
LVMH might face some a few near-term hiccups with the supply chain disruptions and China's potential curbs on luxury imports, but I believe its long-term future still looks bright. The stock also looks reasonably valued at 21 times forward earnings and pays a decent forward yield of 1.6%.
3. Disney
A lot of investors turned against Disney over the past year as they fretted over its costly streaming video plans, its political clashes in Florida, and CEO Bob Chapek's rumored clashes with former CEO Bob Iger. Disney's heavy dependence on discretionary spending -- which tends to wane in an inflationary environment -- also made it a less appealing investment.
However, I still believe Disney's theme parks, media properties, and massive IP portfolio -- which include Pixar, Marvel, and Star Wars -- will continue making money for decades to come. Between fiscal 2001 and fiscal 2021, it grew its annual revenues at a CAGR of 5% as its EPS increased at a CAGR of 6%, and its stock generated a total return of more than 330% over the past two decades.
Disney suspended its dividend payments in 2020 to conserve more cash for the development of its movies and streaming content, but it might resume those payments in the future as its cash flows stabilize again. The stock also still looks reasonably valued at 25 times forward earnings.
Disney might not seem like a compelling value or growth investment right now, but investors who stick with the company through its current transformation might be well rewarded over the next few decades.
