Discovering great stocks for the long haul begins with identifying great companies that are likely to endure the market's inevitable fits. However, it can be tricky to decide which companies fit the bill, so we asked three top Motley Fool analysts to weigh in with which companies they think make the most sense for long-term investors. Read on to learn which three companies they picked.
Leo Sun: I'd stick with Medtronic(NYSE:MDT). The medical device giant has three main businesses: the cardiac and vascular group, the restorative therapies group, and the diabetes group. The first two segments, which together accounted for 90% of company revenue last quarter, usually post middle-single-digit year-over-year sales growth. The diabetes segment, which accounted for the remaining 10% of revenue, has a record of high single-digit and low double-digit growth.
Medtronic is one of the "smartest" medical device companies around. Its cardiac group manufactures a pill-sized pacemaker that can be implanted through the femoral artery without open chest surgery. The restorative group produces "brain pacemakers" that could treat neurological diseases like Parkinson's. The diabetes group manufactures an "artificial pancreas" that consists of a glucometer synchronized to an insulin pump. Devices like these help Medtronic retain an innovative edge over competitors like St. Jude Medical. Between fiscal 2010 and 2014, Medtronic's annual revenue rose 10.5% and earnings per share improved by 8.3%. Its stock has rallied 83% over the past five years.
Medtronic is also a "Dividend Aristocrat" (a company that raises its dividend for at least 25 consecutive years). Moreover, its forward annual dividend yield of 1.7% could improve after the company completes its acquisition of Ireland-based Covidien, since a tax inversion would boost its bottom line and dividends if it maintains its current payout ratio of 40%.
George Budwell: Healthcare has handful of names that might be great "lifetime holds," but I'd argue Gilead Sciences (NASDAQ:GILD)tops the list. While Gilead might be known best for its HIV and hepatitis C franchises, the company also has an increasingly diverse pipeline that investors should not overlook. Specifically, this Foster City, Calif.-based biotech appears primed for a lengthy growth trajectory, given that it is now expanding into high-margin, high-growth markets such as oncology.
Earlier this year, Gilead gained its first regulatory approval in oncology with Zydelig, indicated as a treatment for relapsed chronic lymphocytic leukemia, relapsed follicular B-cell non-Hodgkin lymphoma, and small lymphocytic lymphoma. Although this first cancer drug isn't expected to reach blockbuster status via this initial set of conditions, I think it is the start of a much broader trend for Gilead. There is a good chance of additional cancer medicines coming online soon, as well as multiple liver disease drugs -- some of which have staggering commercial potential. To top it off, Gilead has several promising cardiovascular and respiratory candidates in midstage trials that could very well reach blockbuster status, if approved. Gilead's future looks extremely bright, making it a great stock to buy and hold for the long haul.
Brian Orelli: Looking over the last 125 years, it's hard to find a time when Johnson & Johnson (NYSE:JNJ) wasn't a stock to hold forever. The company has occasionally looked overvalued, but as I pointed out in an article last year, even if you bought at the peaks, you could still beat the S&P 500. The healthcare giant's stock has had a few slips over the years as well, but those ended up being great buying opportunities.
Part of Johnson & Johnson's fortitude -- at least in terms of stock price -- involves its ever-increasing dividend. The dividend yield helps support the stock price when the company isn't firing on all cylinders, and increasing the payout -- now for 52 years in a row -- boosts the stock price as the dividend yield keeps pace.
Obviously, to be a "lifetime hold" at this point, Johnson & Johnson has to have the same kind of success going forward that it has had previously. There are certain advantages of scale as Johnson & Johnson gets larger, but it also faces obstacles, potentially becoming unwieldy as it grows. Fortunately, the corporate structure of its independently run businesses and its willingness to sell businesses that aren't as profitable should help the company grow even as its market cap tops $300 billion.
Leo and George own Gilead Sciences. Brian doesn't have positions in the companies mentioned. The Motley Fool recommends Gilead Sciences and Johnson & Johnson. The Motley Fool owns shares of Gilead Sciences, Johnson & Johnson, and Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.