Buying stocks in today's market can be frightening, but this is the time to buy great companies for low prices and wait for them to grow over time. As stocks have fallen in the past year, more values have emerged, even among some of the biggest companies in the world today.
If you're building a portfolio that you want to hold for a lifetime, I think a great place to start is with Alphabet (GOOG 1.07%) (GOOGL 0.97%) and Walt Disney (DIS 1.33%), two companies that are leaders in their industries and that have big moats protecting their businesses.
Alphabet and the internet's best cash machine
Alphabet is arguably the most dominant company on the internet today. The company's Google search engine is the main discovery tool for most people's internet usage and it leverages that position to be a massive player in digital advertising.
What's amazing about Alphabet's business is how profitable it is. The company generated $62.5 billion in free cash flow over the past year and shows no real sign of slowing down. Search continues to be a key to life on the internet, and advertisers, who pay Google for views and clicks, see the company as a critical partner.
GOOG Price to Free Cash Flow data by YCharts
In a world where scale matters, it's hard to see Alphabet or Google being disrupted in a meaningful way. Others have started search engines with little success and when users and advertisers congregate on a product like Google it helps make Google's product better, locking in both users and advertisers further. It's a great business.
What I like about Alphabet's stock today is the low valuation investors are getting for a company that hasn't lost its leading position in the market. You can see above that the stock has never traded at this low of a price-to-free-cash-flow multiple and yet it's a more established company than it was when it traded for a higher multiple. I recently added Alphabet to my portfolio and this is a stock I'm comfortable owning for a lifetime.
Disney and the future of entertainment
The media business is in turmoil with too many streaming options, linear TV in decline, and uncertainty about the future of the box office. But no matter where the media market goes, Disney is well positioned to succeed.
Disney now has 164.2 million subscribers across its streaming properties, some of the most valuable studios in the world, an 80% stake in ESPN, a bundle of linear TV networks, and theme parks that are arguably the best in the world. This creates a financial waterfall from the movie theater to streaming/TV to consumer goods to theme parks. Content isn't a one-and-done thing, it's monetized for years or decades.
Investors have questioned the company's $30 billion in spending on content, particularly as streaming lost $1.5 billion last quarter, but I think it's worth pointing out where Disney is in its lifecycle. The company's linear TV revenue fell 5% in the most recent quarter to $6.3 billion, direct-to-consumer (streaming) was up 8% to $4.9 billion with a price increase coming soon, and parks and experiences revenue jumped 36% to $7.4 billion. If you think streaming and experiential entertainment are the future, like I do, then Disney is really well positioned to capitalize on it.
You can criticize how much Disney is spending on streaming content, but it's undeniable the company is a leader in streaming and that's the future of content delivery. When you add in the parks business and the $8.5 billion in operating income that's still coming from the linear TV business, this is a great media company to buy and hold.
Don't make investing too complicated
Finding great investments doesn't have to be overly complicated. Alphabet and Disney are leaders in their industries and that's not changing anytime soon. They're also very profitable and those profits should increase over time. That's why they're two stocks investors can buy and hold for a lifetime.
