Three little words can make you a lot of money over the long term: Buy and hold. However, the catch is that you must find the right stocks for those three words to work most effectively.
We asked three Motley Fool contributors which stocks you can buy and hold for decades. Here's why they picked AbbVie (ABBV 0.98%), Bristol Myers Squibb (BMY -0.30%), and Vertex Pharmaceuticals (VRTX 1.25%).
Defying the market downturn
Prosper Junior Bakiny (AbbVie): Pharma giant AbbVie is currently defying gravity. The company's shares are up by 13% year to date, while the S&P 500 is down by roughly 20%. Even better, AbbVie has outperformed the broader market in the past three, five, and 10 years.
Can the company maintain this momentum in the decades to come? While no one can predict the details of such a distant future, AbbVie has what any drugmaker needs to perform well over the long term.
It all starts with the company's lineup and pipeline. AbbVie boasts multiple blockbuster products, including its blockbuster immunology medicine Humira. While Humira will face biosimilar competition beginning next year, the company is betting that immunosuppressants Skyrizi and Rinvoq can pick up the slack.
But AbbVie's lineup isn't limited to its immunology portfolio. The company is well diversified across multiple therapeutic areas, including oncology, neuroscience, aesthetics, and eye care.
AbbVie's pipeline is also diversified, with close to 70 ongoing clinical trials. Having a solid pipeline is critical for pharmaceutical companies because, eventually, they all deal with losing patent exclusivity for their key products.
AbbVie has shown that it can successfully navigate patent cliffs. It handled the loss of exclusivity of Humira in Europe in 2018 -- and the impending biosimilar competition in the U.S. -- by launching brand new drugs and completing the key strategic acquisition of Allergan in 2020.
The company's dividend is one more reason to consider buying the stock. AbbVie's yield of 3.66% is well above average. The big drugmaker has grown its dividend payout by 120% over the past five years. It's also a Dividend King, with 50 consecutive years of dividend increases.
Overall, AbbVie looks like a solid business to hold through the current bear market and beyond.
Plenty of cash to fund growth
David Jagielski (Bristol Myers Squibb): If you're planning to hold a stock for decades, you'd probably like to see strong financials, plenty of growth potential, and a dividend payment wouldn't hurt, either. Bristol Myers Squibb (BMS) offers investors all of that. That's why it's a safe investment that anyone can justify putting in their portfolios.
The company has made multiple acquisitions over the years to expand its operations. BMS recently announced plans to acquire Turning Point Therapeutics for $4.1 billion. Of key importance in the deal is acquiring repotrectinib, a lung cancer drug that BMS expects could obtain approval in the U.S. as early as next year.
It made a much larger $13.1 billion acquisition of MyoKardia in 2020, a company that makes medicine to treat cardiovascular diseases. Heart drug mavacamten (Camzyos) was key to that deal, with analysts pegging its peak annual sales at $2 billion by 2026.
Last year, BMS reported a profit of $7 billion on revenue of more than $46 billion. Whether it develops its own products or just grows via acquisitions, the company has plenty of options. And that's because the company generates tons of cash that it can use on acquisitions. Over the past two years combined, Bristol Myers Squibb's operating cash flow totaled more than $30 billion.
During that time, it also spent $7.8 billion on share buybacks and another $8.5 billion on its dividend, which yields around 2.7% annually. Last year, the company raised its dividend by 10.2%, marking the 13th straight year that it has raised its payouts.
Bristol Myers Squibb has an ample cash stockpile and the potential to keep growing over the long haul. That's why this is a stock that you can hold for not just decades but forever.
The best biotech stock on the market
Keith Speights (Vertex Pharmaceuticals): I view Vertex Pharmaceuticals as the best biotech stock on the market right now. And the reasons why make the stock one that investors can buy and hold for decades.
Vertex commands a monopoly in treating the underlying cause of cystic fibrosis (CF). Monopolies don't always last forever, of course, especially in the biopharmaceutical industry. However, the patents for Vertex's top CF drug don't expire until 2037. The company's nearest rivals have programs in phase 2 testing. Even if clinical studies go well, they're years away from even having a chance at competing against Vertex.
In the meantime, Vertex has plenty of room to grow in the CF market. Its current therapies are used by a little over half of CF patients. The company only needs to secure additional reimbursement deals and label expansions to include younger age groups to boost the number of patients significantly.
But what really makes Vertex a great long-term pick is its pipeline. The big biotech hopes to file for regulatory approvals later this year (along with its partner, CRISPR Therapeutics ) for exa-cel. The gene-editing therapy holds the potential to effectively cure sickle cell disease and transfusion-dependent beta-thalassemia.
Vertex is also evaluating another late-stage candidate, VX-147, in treating APOL1-mediated kidney disease. This indication could present a bigger market opportunity for the company than CF. Yet another program should soon advance into late-stage testing. Vertex has high hopes for its non-opioid acute pain drug VX-548.
In addition, Vertex has a promising early-stage program that could pave the way for curing type 1 diabetes. The company also has a growing cash stockpile of $8.2 billion to use in bolstering its pipeline.
I agree with Prosper and David that AbbVie and Bristol Myers Squibb are great stocks to buy and hold for decades. However, I think that Vertex could deliver even bigger gains over the long run.
