The world is inherently unpredictable. No one could have thought that a global pandemic would happen and bring the economy to a screeching halt. Moreover, supply chain issues, soaring inflation, and rapidly rising interest rates followed.
This makes trying to invest with a 20-year time horizon seem almost impossible. But there are some clues that investors can identify in specific businesses that warrant owning them for this long. It's all about durability.
Let's take a closer look at why Apple (AAPL 2.20%), Nike (NKE 2.29%), and Starbucks (SBUX 0.66%) are three stocks to evenly split a $5,000 investment in, with the intention of holding them for the next 20 years.
Apple
The past two decades have seen Apple introduce game-changing products like the iPod, iPhone, iPad, Watch, and AirPods, all to incredible enthusiasm from consumers. And in the past several years, the company's services segment has been posting strong growth, thanks to offerings like Music, TV+, and Pay. This successful history of innovation and focus on beautiful hardware and user-friendly software is exactly why Apple should remain one of the most valuable companies well into the future.
The powerful brand resonates with consumers, and it has created a business that seems to print money. Apple generated $111 billion of free cash flow in fiscal 2022 (ended Sept. 24). And as of July 1, the company had $166.5 billion of cash, cash equivalents, and marketable securities on its balance sheet compared to $105.3 billion of debt. This financial strength means that Apple has the resources to invest in new ideas that could move the needle from a growth perspective, like augmented and virtual reality initiatives.
After producing a stellar return of 243% in the last five years and a 38% return this year alone (as of Aug. 14), Apple shares aren't cheap, trading at a price-to-earnings ratio of 30. Nonetheless, it might be a safe stock to still consider buying.
Nike
Having been founded in 1964, Nike has the longest operating history of all the companies on this list. And that longevity has benefited the business in two ways. For starters, Nike's brand presence is unmatched. Its clothing and footwear products are in huge demand across the world, and customers are willing to pay premium prices for them. The company's quarterly gross margin has averaged 44.3% over the past five years.
Being successful for such a long period of time means that Nike has been forced to adapt to change in order to ensure its ultimate survival. The shift to digital and e-commerce and away from brick-and-mortar demonstrates management's ability to think about changes in consumer behavior. Nike is focused on relying less on wholesale distributors and instead leaning into its own channels.
The leadership team wants half of all revenue to eventually come from digital sales. This shouldn't be a problem considering that Nike's Consumer Direct Acceleration strategy, which started in 2020, prioritizes digitizing operations.
The next 20 years could look very different from the last 20. That's because most of Nike's gains are poised to come from the fast-growing Greater China region, which represented 14% of company revenue in the most recent fiscal quarter (the fourth quarter of 2023, ended May 31).
Starbucks
With over 37,000 stores worldwide as of July 2, Starbucks is already a ubiquitous brand. But executives believe the business can have 55,000 locations open by the end of 2030. Consequently, the expansionary runway still looks to be very big, with a lot of the growth coming from China.
Like Apple and Nike, Starbucks' brand is the key to its success. And it will continue to play a huge part in how the company fares going forward. Starbucks has been able to sell a commoditized product at premium prices, leading to sizable growth and profitability, primarily because it has found a way to encourage consumers to spend more.
Starbucks' top-notch rewards program, with 31.4 million active accounts in the U.S., is incredibly valuable. It not only drives customer loyalty that leads to repeat visits, but it also provides the company with an effective way to collect data that can inform product and marketing decisions.
With a high degree of certainty, investors can be sure that Starbucks will be doing the same thing in 20 years that it's doing today. By not inviting much technological disruption, the business is better insulated from the threat of competition. And this raises the chances that it is still a successful enterprise two decades from now.
