Many investors dream of building a stock portfolio that can be passed down to their kids and grandkids someday. To do that, you'll need to fill your portfolio with a special kind of stock -- specifically, those that will stand the test of time.
How do you figure out which stocks will last for decades to come, as opposed to those that are simply good investments now? Here are three "forever" stocks that our contributors like, and some of the reasoning behind why they like them so much.
Dan Caplinger: One stock that should stand the test of time for generations to come is PepsiCo (NYSE:PEP). The food and beverage company has already reinvented itself several times over the course of its long history, spinning off its restaurant chains into Yum! Brands and leaving itself with its core soft-drink and snack-food business. That convenience-store combination has given PepsiCo immense opportunities for growth, with the inherent diversification giving it an edge over its rivals as it has sidestepped some of the controversy over sugary carbonated beverages and relied on snack sales to pick up the slack.
For investors, PepsiCo has demonstrated its track record of treating shareholders well. Not only has the stock seen its price appreciate dramatically over the decades, but PepsiCo has also put together a 43-year history of raising its dividend payouts to investors each and every year. With a dividend yield of about 2.6%, PepsiCo doesn't skimp on current income, but it also has seen its share price double since early 2009.
Looking forward, PepsiCo has a number of strategic directions it's pursuing in order to find greater future growth. With so many things going for it, PepsiCo has the staying power to produce huge returns not just for you but for your children and grandchildren as well.
Matt Frankel:One stock that I believe epitomizes long-term investing is Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B). And although Warren Buffett himself recently admitted that the company's past performance isn't likely to be replicated in the future, it's still a solid long-term investment that should continue to outperform the market over an entire economic cycle.
There are a few reasons to like Berkshire for the long run. The first is the diversity of the company's holdings. Berkshire has a diverse collection of fully owned businesses, many of which are household names such as Geico, Hanes, and The Pampered Chef. The company also has a portfolio of common stocks that most long-term investors would love to have, including such rock-solid companies as Wells Fargo, Johnson & Johnson, and Coca-Cola, just to name a few out of the 45 stocks Berkshire owns.
But perhaps more important than the diversity is the company's commitment to capital preservation and shareholder-friendly management. Berkshire maintains a large cash stockpile to make sure it can weather any economic storm and take advantage of opportunities that present themselves. And Berkshire never puts itself in a position where it has an immediate need for cash.
Over the next 50 years, Buffett believes that Berkshire will be able to add to its earning power each and every year, and that long-term investors will most likely outperform the market. For these and other reasons, I believe that Berkshire is the best all-around stock in the market, and an excellent long-term investment that can be passed down for generations to come.
Selena Maranjian: Apple (NASDAQ:AAPL) isn't nearly as much of a buy-it-and-forget-it stock that Berkshire Hathaway or PepsiCo are, but if you're willing to keep an eye on it, it has the potential to do wonders for a portfolio over the long term.
It has been performing extremely well in recent years, with its last quarter being the most profitable quarter any company has ever had, featuring $75 billion in revenue and $18 billion in earnings, up 29% and 38%, respectively, year over year. That's largely due to robust iPhone sales, with 75 million sold in the quarter, representing 69% of revenue. It's also significantly due to the massive market of China, which generated 58% of total revenue growth, with revenue climbing by 70% year over year. That's auspicious, as China offers much more room for growth, but China also presents much risk, as the government may constrict Apple's growth through edicts or outright bans.
Also, Apple's recent past doesn't foretell its future. iPhones do have some competition, and iPad sales have been slumping. New iPads are on the way, though, and new iPhones debut regularly. And better still, other offerings are in the wings, such as a much-anticipated Apple Watch – and even rumors of an Apple electric car! Meanwhile, its new Apple Pay mobile payments system holds a lot of promise, as does the company's forays into health-tracking devices and apps and connected "smart" homes. This is a company with proven innovation chops.
Apple's stock has surged more than 70% over the past year, and it has averaged gains of 21% annually over the past 30 years. The stock is far from a screaming bargain right now, with its P/E ratio of about 17 above its five-year average of 15, but its forward-looking P/E is close to 14, suggesting it isn't wildly overvalued, either. Perhaps add it to your watch list, or buy in incrementally.
Dan Caplinger owns shares of Apple and Berkshire Hathaway. Matthew Frankel owns shares of Berkshire Hathaway. Selena Maranjian owns shares of Apple, Berkshire Hathaway, Coca-Cola, Johnson & Johnson, and PepsiCo. The Motley Fool recommends Apple, Berkshire Hathaway, Coca-Cola, Johnson & Johnson, PepsiCo, and Wells Fargo. The Motley Fool owns shares of Apple, Berkshire Hathaway, Johnson & Johnson, PepsiCo, and Wells Fargo and has the following options: long January 2016 $37 calls on Coca-Cola, short January 2016 $37 puts on Coca-Cola, short April 2015 $57 calls on Wells Fargo, and short April 2015 $52 puts on Wells Fargo. 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.