Many traders hope to get rich quick in the stock market, but over time, the best performance has come from long-term investors who choose companies that can produce solid returns year after year. The key is finding stocks that have the potential for that kind of long-term success over a period of decades. To help uncover some good prospects, we've looked at seven stocks we think are smart for buy-and-hold investors to look at for their portfolios over the next 20 years.
Todd Campbell: CVS Health (NYSE:CVS) could be a great investment for people with a 20-year time horizon, because 10,000 baby boomers turn 65 every day, and the over-65 population is expected to grow to 81 million people in 2040 from 40 million people in 2010.
Since CVS Health operates one of the largest retail prescription networks in the country, and runs the second largest pharmacy-benefit manager in the United States, it's perfectly positioned to benefit from volume growth tied to this upcoming (and massive) demographic shift.
While drugmakers could get pinched by payers on pricing, CVS Health's role as a middleman should insulate it against risks associated with payer pushback. Instead, attempts to curb drug spending could boost demand for CVS Health's pharmacy benefit manager, which provides services that increase generic drug use and boost drug adherence to prevent costly hospitalizations.
Further, low-cost, just-in-time care for illness and injury such as ankle sprains and the flu should allow CVS Health's in-store MinuteClinics to carve out an important (and lucrative) role as healthcare providers.
Overall, if CVS Health's sales and profit climb because of boomers, then socking away its shares for the long haul when they're trading at a forward P/E ratio of 16.6 could be savvy.
Steve Symington: Amazon.com (NASDAQ:AMZN) has handsomely rewarded investors since its IPO almost 19 years ago, including a nearly 1,300% gain over the past decade as of this writing. But even with Amazon stock trading near all-time highs, I think the online retail behemoth has plenty more to give over the next two decades.
For now, top-line growth remains the name of the game. Amazon's revenue last quarter climbed 23% year over year to $25.4 billion, and it would have risen an even more impressive 30% had it not been for the negative effects of foreign exchange. Within that, net product sales climbed 15% to just under $18.5 billion. But as fellow Fool Andrew Tonner pointed out recently, e-commerce only accounted for around 7.4% of total U.S. retail sales last quarter, which means Amazon's retail business still enjoys an enormous runway for stateside growth. At the same time, North America still represented more than 59% of Amazon's total revenue in Q3, leaving plenty of room for Amazon to grow its international retail presence.
But Amazon is also about much more than "just" the retail business today. Revenue from Amazon Web Services rose an impressive 78% year over year last quarter to nearly $2.1 billion, comprising just 8.2% of Amazon's total sales. Meanwhile, AWS generated superior operating margin at 25%, which meant at $521 million, AWS' operating income actually came in higher last quarter than the $472 million collectively mustered by Amazon's core global retail operations.
Assuming AWS can sustain this attractive combination of growth and profitability in the coming years as Amazon continues to increase its share of the budding e-commerce industry, I see no reason Amazon stock can't continue generating outsized returns for the foreseeable future.
Andres Cardenal: The tech sector can be a promising niche for investors hunting for companies with superior potential for growth and innovation. On the other hand, the industry is also particularly dynamic and always changing -- the winner of today can easily turn out to be the loser of tomorrow.
For this reason, a diversified approach to investing in the tech industry could be a smart way to bet on many of the most innovative businesses in the world, while at the same time keeping company-specific risk at bay, and Technology Select Sector SPDR ETF (NYSEMKT:XLK) looks like a convenient vehicle to implement such strategy.
The ETF invests in 72 companies from the technology sector of the S&P 500 index, and big industry players account for most of its portfolio. Among the leading positions in Technology Select Sector SPDR ETF we find many of the strongest and most recognized names in the industry, including Apple, Facebook, Microsoft, and Alphabet. The ETF holds nearly $14.4 billion in assets under management, and it has a conveniently low expense ratio of 0.15% annually.
It's hard to tell which tech company will profit the most over the next 20 years, but chances are that companies in the tech business as a whole will create a lot of value for investors over the long term, and investors in Technology Select Sector SPDR stand to benefit substantially from this value creation.
Dan Caplinger: I love stocks that get hammered on purely short-term issues, and Chipotle Mexican Grill (NYSE:CMG) is a great example. The Mexican-food fast-casual chain has seen its stock fall sharply following an outbreak of E. coli that the Centers for Disease Control has linked to the company's restaurants. Originally, the outbreak appeared to be limited to the Pacific Northwest, but more recent reports in states in the Midwest and further east suggest at least the potential of a more widespread problem.
Past problems with restaurant chains and E. coli outbreaks have led to dramatic sales declines, so many are concerned that Chipotle will suffer long-term damage from the episode. Yet at least so far, the number of cases involved with Chipotle is far less than in past outbreaks that other restaurant chains experienced.
If the company is able to demonstrate that the problems were outliers rather than symptomatic of longer-term practices at its restaurant locations, then Chipotle's loyal customer base is likely to give the chain the benefit of the doubt and continue to allow it to grow. The risk of mismanaging the epidemic does exist, but given Chipotle's past commitment to high-quality healthy food, the company is more likely than not to find a path back to prosperity after the episode blows over.
Tim Green: Given the ongoing revenue declines at International Business Machines (NYSE:IBM), recommending that the stock be bought and held for 20 years may seem like a questionable proposition. Revenue has slumped for 14 quarters in a row, and the stock is down more than 25% over the past three years.
But IBM is not a company that attempts to grow revenue at all costs, and it's not a company that aims to be the biggest of anything. The rise of cloud computing is viewed as a threat to IBM's business model, which involves selling solutions including hardware, software, and services, but IBM has proven again and again that it is capable of adapting.
In the 1950s, when the company was highly successful selling and leasing mechanical accounting machines, it became clear that computers were the future, and IBM jumped on the opportunity. In the 1990s, when PCs and servers nearly killed the mainframe business, IBM transformed itself again by focusing on high-margin opportunities, building a global services business, and growing its presence in software, all while resisting misguided calls to break up the company.
IBM now faces another critical juncture, but unlike in the 1990s, when the company was losing billions each year, IBM is still wildly profitable. The company's new focus is data, and IBM is investing heavily in its business analytics and cognitive computing capabilities. Watson, IBM's machine learning system, is being pushed as a tool in industries ranging from finance to healthcare, helping businesses make better decisions by drawing insights from mountains of unstructured data.
Twenty years from now, IBM will likely look quite a bit different than it does today. But the strategy, to focus on high-value products and services where the company can gain a competitive advantage, is a sound one, and I suspect that shareholders buying the stock today will be pleased 20 years from now.
Jason Hall: To start, you'd need a company with strong competitive advantage operating in an industry with high barriers to entry, and a low risk of disruption. Very few companies have one or two of those characteristics. MasterCard (NYSE:MA) has all of them.
MasterCard operates one of the largest payment processing networks on the planet, but it also has huge opportunity for growth. Today, MasterCard operates in 150 countries around the world and conducts over 30 billion transactions annually, but plastic -- both real swipes and the virtual kind via mobile -- barely scratches the surface of total transactions. Well over half of all transactions in the U.S. are still cash or check, while that amount skyrockets to more than 80% in the rest of the world.
MasterCard is barely scratching the surface.
When it comes to competition, mobile payments aren't a threat, but a catalyst since these transactions still require MasterCard or other processor's networks to facilitate the actual transaction that merchants depend on to get paid.
Lastly -- and this is what makes MasterCard such a great long-term investment -- is the steady cash flows and relatively low cost of growth. MasterCard's network won't require significant expense to expand. This means more growth flows to the bottom line, and should be paid to investors.
MasterCard stock only yields about 1% today, but the dividend has been increased 1,000% over the past five years. In other words, people who bought the stock at $35 in 2011 are getting a 6% yield on their original investment -- not to mention a tripling of the share price. Extrapolate even a fraction of that return over 20 years, and it's life-changing. Sign me up.
George Budwell: Isis Pharmaceuticals (NASDAQ:IONS) is my pick because the company has one of the deepest and most diverse clinical pipelines in the entire pharmaceutical industry. That's particularly impressive in light of the fact that the drugmaker's present market cap is only $7 billion.
Although its first-approved product, Kynamro, an injected medicine for a genetically based form of super-high bad cholesterol, hasn't performed particularly well in terms of sales, Isis has significantly refined its antisense drug platform since Kynamro's development, leading to the advent of several experimental products with blockbuster potential.
Going forward, investors need to keep a particularly close eye on the clinical progress of the company's pediatric spinal muscular atrophy treatment called "Nusinersen," the next-generation cholesterol drug Volanesorsen, and the blood-clotting disorder treatment ISIS-FXIrx. All three of these experimental drugs are making steady progress in the clinic and have the potential to turn into major value drivers for Isis in the years to come as a result.
While there's no guarantee when it comes to developmental-stage biopharmas, Isis does offer investors a rich clinical pipeline that should produce at a least a handful of major drugs over the next decade or so, making it a great stock to own for the long haul.