At The Motley Fool, we take a long-term view on investing. With that in mind, we asked seven of our analysts for their favorite stocks to hold for the next 20 years and beyond. Here's what they had to say.
One company I'm interested in buying and holding for 20 years is Waste Management (NYSE:WM), the 800-pound gorilla in the garbage industry. It not only collects trash, but also provides waste transfer, recycling, resource recovery, and disposal services. The main reason I favor it as a 20-year holding is this: While it's impossible to imagine whether most companies will be going strong in 20 years, garbage is pretty steady business. Apple (NASDAQ:AAPL) is doing terrifically right now, but given how quickly technology changes, it's far from certain that Apple will be the top dog in 20 years. Even telephone and cable companies might experience massive changes in two decades. But I'm fairly certain that there will be plenty of waste to collect and process in 2035.
Waste Management's revenue has been growing slowly, and earnings have fallen in recent years. That's because the company is in the midst of restructuring and cutting costs, and it has also been affected negatively by some currency translation effects. However, it has been raising prices and enjoying free cash flow of more than $1 billion annually. It has also been turning itself into a "green" waste company, investing in a cleaner fleet of garbage trucks and converting landfill gases into electricity.
Waste Management also offers investors a significant dividend, recently yielding 2.9%, and it has been increasing its payout by an annual average of about 7% over the past decade. Its stock has averaged annual growth of nearly 10% over the past 20 years.
My only caveat is that with Waste Management stock up more than 25% over the past year, it doesn't look like a screaming bargain right now, so you might want to add it to your watchlist and hope for a price drop.
For long-term investments, I like to choose companies that have already stood the test of time and demonstrated an ability to adapt to changing conditions. MasterCard (NYSE:MA) doesn't have a very long track record as a publicly traded stock, but the company has successfully navigated several evolutions in the financial-transactions industry. MasterCard's No. 2 position might seem to make it an inferior choice to Visa (NYSE:V), but MasterCard has done a masterful job of emphasizing the international growth potential from both developed and emerging markets worldwide. Given the need for better payment systems in areas of the world that don't have the financial infrastructure the U.S. enjoys, MasterCard is targeting markets with the best prospects to produce maximum profit.
Moreover, MasterCard has shown that it's not sitting still. In 20 years, the way we pay for everyday things could be far different, with mobile payments still in their infancy and many other possible future payment methods not yet even conceived. Yet MasterCard hasn't let any new payment initiatives go by without getting its foot in the door, and that's why I'm confident the card giant will adapt to changing conditions and keep delivering value to shareholders.
Pfizer (NYSE:PFE) admittedly wasn't a great stock to own over the past 10 years. Its stock climbed 34% during that period, but it underperformed the S&P 500's 74% gain. Its business got cluttered with low-margin businesses, it rode its blockbuster cholesterol drug Lipitor off a patent cliff, and it slashed its dividend.
However, past performance isn't a reliable indicator of future returns. Over the past few years, Pfizer has sold and spun off several business segments, slashed jobs, and raised prices to protect its bottom line. It started hiking its dividend again in 2010, and it now pays a decent 3.4% forward annual yield.
Pfizer also streamlined its business into three distinct businesses: global innovative pharmaceuticals (GIP); vaccines, oncology, and consumer healthcare (VOC); and global established pharmaceuticals. It boosted the VOC business by acquiring Baxter International's (NYSE:BAX) vaccine portfolio last year and is reportedly eyeing another major acquisition to expand its GIP business. Pfizer's most closely watched experimental drugs -- breast cancer drug palbociclib and cholesterol drug bococizumab -- could also be approved and would offset its ongoing Lipitor losses.
After this transition is completed, Pfizer will likely evolve into a more balanced company. Revenue growth will remain soft in the near term -- Wall Street expects the company's annual revenue to slip 3% between fiscal 2014 and 2015 -- but new drugs and inorganic growth could get the company back on track over the next decade.
Leo is correct that a stock's past performance doesn't necessarily predict future results, but certain trends tend to hold over time. These include a solid dividend history, an adaptable business model, and good management, just to name a few.
For that reason, Toronto-Dominion Bank (NYSE:TD) is one stock I want to own for the next 20 years. TD has increased its dividend every year over the past decade, and it's one of the few banks with substantial U.S. exposure that can make this claim.
The bank's growth has been impressive. Over the past decade alone, the company has nearly tripled its assets and increased revenue from less than $2 billion to more than $7 billion per year. Not only that, but the bank's efficiency and capital ratios have been increasing steadily as well.
Perhaps my favorite reason to like TD over the long term is its winning business model. It's known as "America's Most Convenient Bank," as customers can do their banking in person seven days a week at most branches, and the bank closes only on holidays. Many branches are also open late, with drive-through banking available for hours after other banks close.
And now may be a great time to buy. TD significantly underperformed the rest of the sector in 2014 and now trades near its 52-week low. With 12% annual revenue growth expected for the next five years, this could be a great chance to get into a solid bank at a nice discount.
Celgene's best-selling drug is the multiple myeloma drug Revlimid, a market-share-leading second-line treatment that saw $5 billion in sales last year. Celgene also markets three other drugs with billion-dollar blockbuster potential: Abraxane, Pomalyst, and Otezla. Those drugs should continue to generate sales for years to come.
Celgene estimates that its revenue will grow from $7.6 billion in 2014 to $9 billion in 2015 and over $20 billion in 2020. Celgene's R&D budget outstrips its peers' in percentage terms, and it's part of an aggressive collaboration with some of the industry's most intriguing emerging biotech innovators, including Agios (NASDAQ:AGIO) and Bluebird Bio (NASDAQ:BLUE). This means Celgene could launch a steady stream of new drugs over the next decade to propel sales even higher through 2030. Overall, Celgene's rock-solid balance sheet, industry-leading product line-up, and potential pipeline of new products make it one of my favorite stocks to own for the long haul.
Anyone familiar with life insurance tables knows that Charlie Munger and Warren Buffett are unlikely to be alive in 20 years. They joke about it at each annual meeting: Money can buy you more life expectancy, but only to a point.
I know that Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) will be managed by fresh faces in the future. But even without two of the best investors who ever lived, Berkshire remains one of the best buy-and-hold stocks. The reason is simple: Berkshire owns the world's best businesses in every single sector. Its insurers are some of the most profitable in the world. Ajit Jain, who presides over one of Berkshire's most valuable insurers, is only 63 years old, so he'll be there for years to come. Likewise, I see no reason why smaller cash cows like See's Candies would stop producing profits if Buffett or Munger were no longer at Berkshire's Omaha headquarters.
These great businesses have a strong backbone in their corporate culture. Buffett and Munger aren't just incredible investors; they have also fostered strong cultures. For example, insurer National Indemnity tells its employees that it won't cut their jobs if they don't write insurance. Berkshire would rather have too many employees than have employees who justify their salaries by taking excessive risks. I don't expect these things to change in the future: Changing a company's culture is like moving mountains.
In short, Buffett and Munger may leave the stage, but their hand-picked businesses will keep performing. That's why I think Berkshire Hathaway is a great business to hold for the next 20 years.
The most important consideration when buying and holding a stock for the long term is that the business has competitive advantages that guarantee the business will be just as strong, if not stronger, in 20 years. That's why my pick for the next 20 years is Philip Morris (NYSE:PM).
Excluding the U.S., where former parent Altria (NYSE:MO) dominates, and China, where the Chinese government is the only tobacco seller, Philip Morris owns seven of the top 15 international cigarette brands around the world. Most notable is Marlboro, the world's No. 1 cigarette brand since 1972, with more volume than the No. 2 and No. 3 brands combined. The third-largest brand, L&M, is also part of the Phillip Morris International brand portfolio, with Bond Street, Parliament, Philip Morris, Chesterfield, and Lark rounding out the rest of Philip Morris' portion of the top international cigarette brands.
While brand is always important, what makes Philip Morris unique is that its dominance is spread far around the world. Philip Morris has the No. 1 brand in 59 countries and market share of more than 40% in 45 countries. That's important because while cigarette consumption is dropping in the U.S., worldwide cigarette consumption continues to grow.
Another reason to like Philip Morris is that because many people avoid think of it as a "sin stock," you can often buy shares at a discount to the market, though the shares should arguably trade at a premium, given the strength of the business. Currently, the market trades for a trailing P/E ratio of 19, while Philip Morris can be had for a P/E ratio of 16.5. Over the long term, you can reinvest your dividends and handily beat the market.
Dan Caplinger owns shares of Apple and Berkshire Hathaway. Dan Dzombak owns shares of Altria Group and Philip Morris International. Jordan Wathen has no position in any stocks mentioned. Leo Sun owns shares of Altria Group, Apple, and Pfizer. Matthew Frankel owns shares of The Toronto-Dominion Bank (USA). Selena Maranjian owns shares of Apple, Berkshire Hathaway, and Celgene. Todd Campbell has no position in any stocks mentioned.
The Motley Fool recommends Apple, Baxter International, Berkshire Hathaway, Celgene, MasterCard, Visa, and Waste Management. The Motley Fool owns shares of Apple, Berkshire Hathaway, MasterCard, Visa, and Waste Management. 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.