One of the most vexing questions facing everyday investors is when to sell a stock. Ideally, the answer is never. Warren Buffett, the world's greatest investor, famously said, "Our favorite holding period is forever."
Buffett searches for stocks with economic moats -- sustainable competitive advantages that should drive profits for the foreseeable future. Coca-Cola, a Buffett favorite, has tremendous brand and distribution power, making the global beverage leader a great example of this kind of stock.
A stock worth holding forever is the best kind of investment. You can rest assured that despite the ups and downs of the market, the stock will rise over the long term, giving you added returns and quelling your concerns about when to sell. With that in mind, here are three never-sell picks from three Fool contributors: Netflix (NFLX 1.54%), Walt Disney (DIS -1.44%), and Apple (AAPL 0.25%).
Jeremy Bowman (Netflix): The best buy-and-hold stocks and the biggest returns come from disruptive innovators -- companies that first quietly undermine the old way of doing business and then grow to the point of overthrowing it, making the former industry titans obsolete.
In its brief history, Netflix has proven itself a master of this type of disruptive innovation. The video entertainment company initially disrupted the video rental model with its DVD-by-mail business, which grew to serve 20 million U.S households at its peak.
The success of that business toppled giants like Blockbuster, but improving technology allowed Netflix to disrupt itself and the industry again with the streaming model. The company now counts more than 65 million subscribers worldwide, and that number is growing quickly.
In the meantime, the company has doubled down on original programming -- yet another bold innovation -- making it a primary threat to the likes of Comcast and HBO. Netflix expects to complete its international expansion by next year, and then to begin earning significant profits. Though some are skeptical of Netflix's future profitability, it's already ahead of its contribution margin goals, and is far and away the global leader in video streaming entertainment, which should give it pricing power down the road.
CEO Reed Hastings recently predicted that over the next 20 years, linear TV consumption would decline in each year, while Internet TV would grow every year. That may have seemed like a bold prediction a few years ago, but it's already proving true. The way we consume home entertainment is changing, and Netflix is leading that transformation. Selling such a stock may only mean missing out on some huge gains.
Tim Beyers (Disney): Fashion is fickle. Products come and go. But characters? They endure, and no one has more marketable characters than Disney.
Actually, that's understating it: Disney imprints are responsible for more than twice as much retail revenue as those of any other brand-holder. Here's a closer look at the latest rankings as compiled by License! Global magazine:
- Disney: $45.2 billion
- PVH Corp.:$18 billion
- Meredith: $17.7 billion
- Iconix Brand Group: $13 billion
- Mattel: $9 billion
Time Warner ranked seventh with just $6 billion in consumer products sales. Think about that for a moment. The company behind Batman, Superman, Bugs Bunny, Daffy Duck, and so many others generates one-seventh the retail revenue of its primary rival. That's a crazy gap which isn't likely to close soon, or ever. Too many brands have endured for too long.
Think of the Disney Princesses. Snow White and the Seven Dwarfs was released in 1937, yet merchandise featuring the iconic character sells to this day. You can say the same about Cinderella (1950), Alice In Wonderland (1951), and Sleeping Beauty (1959). License! calls the line "one of the world's most popular girls' brands."
That, right there, is why I'm not interested in selling. Unlike any other product or service, licensable intellectual property has a near-infinite period over which it can earn high-margin profits. So long as Disney has these sorts of durable brands in its portfolio, the stock will be worth holding.
Bob Ciura (Apple): I've owned shares of Apple for a few years, and I can already say with a high degree of confidence that I'll never sell my shares. That's because I believe Apple will be at the forefront of any major technological breakthrough in my lifetime. There will surely be bumps in the road; after all, Apple's growth follows an ebb and flow, the result of its cyclical product releases. But the company has a massively profitable business and a world-class brand, and I don't see this changing any time soon.
Apple generated $60 billion of free cash flow in the first three quarters of its current fiscal year, and now holds $202 billion of cash and investments on its balance sheet. Just last quarter, Apple grew revenue 32% year over year, and the company expects 18% year over year revenue growth in the current quarter.
All this cash flow and cash on the balance sheet allows the company to generously reward shareholders with aggressive cash returns. Apple returned over $13 billion to shareholders last quarter, which included $3 billion in dividends and $10 billion in share buybacks. The buybacks helped Apple reduce its share count by 4.6% year over year. I fully expect Apple to raise its dividend at a double-digit rate for many years, as its free cash flow dividend payout ratio is just 14%.
To me, there is no company better positioned than Apple to create huge value for its shareholders over the next several decades. That's why I intend to never sell my Apple shares.
