What if you told me to pick just one stock to invest my entire nest egg in today, and hold only that stock ticker for the next five years? Honestly, I would have asked you to go get a third cup of coffee and some better jokes. That's not how investing works.
That idea only makes sense if you're entrusting your long-term financial health to a naturally diversified collection of different stocks with microscopic expense ratios, such as the SPDR Dow Jones Industrial Average ETF Trust (DIA 0.68%) or the Vanguard 500 Index Fund ETF (VOO 0.87%). But that's kind of cheating, for the purposes of this brain-teaser challenge. With these two exchange-traded funds, your results will actually depend on the fortunes of 30 or 500 companies, respectively -- not just one. But that's what it takes if you have to entrust your savings to just one ticker symbol.
You see, parking all your life savings in any single stock, bond, cryptocurrency, or real estate parcel can be bad for your financial health. No business is ever completely risk-free, and you should always be prepared for something to go terribly wrong. That's why my friends and colleagues at The Motley Fool wholeheartedly suggest building a portfolio of at least 25 individual stocks, and holding on to each one for at least five years. That way, other companies can pick up the slack when some of them are struggling.
But, as they say, limits can spark fresh creativity, and that's how I found myself on this wild adventure to find the one stock to rule them all. If I had to pick just one stock to buy now and hold for the next five years with no support from other ideas along the way, the choice is crystal clear. I actually tried my best to avoid this specific ticker, but it kept coming up aces in every test and screening experiment in my arsenal.
Spoiler alert: It's Alphabet (GOOG 1.43%) (GOOGL 1.42%).
The Alpha-bet on longevity
First of all, I trust Alphabet to stay relevant, profitable, and growing for decades to come. There may be speed bumps and tight turns along the way, but I expect many years of enduring growth from this nimble and innovative company.
The business formerly known as Google was restructured into the holding company you know as Alphabet today, with the express purpose of preparing the business to expand beyond Google's traditional markets and eventually live on without the Big G brand.
In this form, Alphabet is like the ultimate tech buffet, offering a smorgasbord of tempting long-term opportunities. While Google's online search and advertising business is the main course today, Alphabet's flexibility and willingness to adapt to changing markets make it an investor's dream come true.
The real-world economy is always changing, and every business is aiming for a moving target. So Alphabet pursues lots of different ideas with potentially game-changing business prospects at all times. Any of them might step up to shoulder the company's operating core as needed.
From self-driving cars to medical research, there's no telling what Alphabet's main business will be in the future -- but you can bet your bottom dollar that the company stays healthy and investors stay wealthy.
A future-proof Alphabet soup
Robust growth prospects over many decades don't matter if your company might go out of business in the next couple of years. I don't see that happening to Alphabet, whatever the ever-fickle global consumers and inflation-fighting world governments might do next.
Alphabet's current recipe for success includes a healthy helping of Google Cloud's computing services and a dash of Android's mobile services and app sales. These ingredients ensure that Alphabet stays ahead of the curve, even as the world of technology continues to evolve at breakneck speed. Take away the entire online search and advertising business today, and you would still have a cloud computing business with $26.3 billion of annual sales.
That's nothing to sneeze at!
A Goldilocks valuation
The stock trades at 24 times trailing earnings and free cash flow (FCF). At the same time, the revenue line shows a five-year compound annual growth rate (CAGR) of 20.6%. For bottom-line earnings, the five-year CAGR stands at 23.3%.
In other words, you can get your hands on some impressive financial growth through Alphabet's modest valuation ratios. It's not a drool-inducing bargain, but it's no nosebleed-inspiring swindle, either. And the current levels really do feel affordable in the context of the company's historical valuation ratios:
GOOGL price-to-FCF data by YCharts. PE = price to earnings.
Alphabet's valuation is closer to a modest Goldilocks than Gordon Gekko's limitless greed. That's fine by me.
What's not to love?
At the end of this fun thought experiment, I must say that Alphabet is the only single stock I'd trust for all my investments. Sure, diversification is the key to a healthy and balanced portfolio, but if I had to choose just one stock to hitch my wagon to, it would undoubtedly be Alphabet. With its finger in every technology pie imaginable and a track record of staying relevant, this company is the epitome of a smart bet for the long haul.
So, here's to Alphabet: the only stock I could imagine trusting to preserve and grow all of my retirement savings and cash reserves for the next five years (and longer).
