The best buy-and-hold stocks you can buy now and know you’ll make money over then next 10 years
I want to start today’s post with something different, a question for you. What is the longest you’ve held a stock and how long have you held the stocks in your portfolio?
Because if you’re like most investors…it’s not very long. Data from the New York Stock Exchange shows the average holding period for stocks is now just five-and-a half months…investors are holding stocks for less than half a year on average. That’s down from an average of eight-year holding period back in the 50s.
And you know what, there’s nothing wrong with that. I like to trade in and out of stocks just as much as anyone, trying to find that next big thing.
But wouldn’t it be nice to have some of your stocks that you never worry about? What if you could put part of your portfolio in a handful of stocks that boom or bust, would make you money over the next ten or twenty years?
In this video, I’ll reveal the 11 best stocks to buy and hold forever, one best of breed stock from each sector that you can buy now and know that your portfolio is going to grow. I’ll show you how I picked each of these and what to look for in a forever stock.
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Buy and Hold Stocks from Each Stock Sector
Now most forever stocks videos focus exclusively on growth stocks, those hot stocks from just a few sectors like technology and the internet. This one is going to be different though. To give you a diversified portfolio of stocks that will not only grow long-term but also protect you from a crash in any particular group, I’m going to reveal one buy-and-hold stock to buy from each sector of the economy.
We’re going to jump right into that list of best stocks to buy now but if you want a complete list of the biggest stocks in my portfolio, the forever stocks I’m holding, click through the link below. It’s a totally free report I put together with the Motley Fool, a list of my seven favorite stocks. It’s totally free to download, no obligation and a great list of stocks to add to the ones I’ll show you today.
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The Best Stock to Buy in Consumer Staples
Let’s start with Consumer Staples and Estee Lauder, ticker EL, the second largest by market share in the global premium beauty market . Estee controls 13.2% of the market, closely behind L’Oreal with 16% and nearly twice as much as the next largest competitor LVMH with 7% of the market.
Estee has some of the most recognizable brands in its category and a #1 or #2 market spot in 40 countries. That gives it strong pricing power for higher profitability and premium makeup isn’t as affected by off-brands or inflation as we see in a lot of other consumer goods. Customers are paying for quality and the brand, they aren’t as likely to switch because of price.
Sales growth is up 5.6% annually over the last three years but accelerating, up 9.9% in the most recent quarter. We really see that premium pricing come through in profitability though with a 20.4% operating margin, well above peers and increasing four-percent over the last three years on a cost saving program. And again, I’ll explain why I’m looking at these measures to find our forever stocks later in the video so keep watching for that.
More than a quarter of sales are now from the ecommerce channel and I think there’s a lot of untapped growth here as live online shopping becomes popular on social media. This is one of the biggest trends in China and businesses are trying to bring it to the U.S., and the idea is custom-made for the beauty industry . That combined with a strong opportunity in emerging markets where Estee is building out its leadership in China, India and Brazil give the stock some good long-term growth catalysts.
Shares are now trading for 5.1-times on a price to sales basis which is right at the five-year average but well below the 8-times multiple we saw last year. It’s also well off it’s five-year price-to-earnings valuation so some good value here along with that long-term potential.
My Favorite Buy and Hold Real Estate Stock
For the real estate sector, I really like the growth potential in Gaming and Leisure Properties, ticker GLPI, along with its 6% dividend yield.
The company owns 52 properties in 17 states, many without a competitor for more than 60 miles. Its casinos are operated by some of the biggest names like Caesars, Boyd and Penn National with gaming and over 15,000 hotel rooms.
Besides the growth in gambling we’re just starting to see across the U.S., I really like the company’s strategy here. It contracts with operators on a triple-net basis, which means the casinos pay all costs including maintenance and GLPI has been able to keep 100% occupancy since inception.
Obviously the property type got hit in the pandemic but free cash flow is already on its way higher. GLPI booked $1.2 billion in sales last year, a record for the company, and 6% above pre-pandemic sales. The company also generated $728 million in FCF over the last year, nearly double the $424 million in 2020 free cash flow and above pre-pandemic as well.
It’s not a value stock at just over 9-times on a price-to-sales basis and 21-times price-to-earnings but this is a company producing a 67% operating margin which is very high even for real estate stocks. The long-term growth is there along with some near-term catalysts in a return to gaming.
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The Top Stock in Communication Services
In Communication Services, Walt Disney, ticker DIS, is the perfect example of a media empire done right.
We’ve seen others try to tack together content and distribution, from AT&T to Paramount and Warner Brothers but only Disney has been able to unlock the secret.
Between the theme parks, media distribution with Disney-plus and Hulu, studio content through Marvel, Lucasfilm, Pixar and 20th Century Fox and its cable distribution with ABC, ESPN and FX …Disney has that synergy of content and the distribution that no one else has been able to perfect.
The company was able to reach 130 million subscribers on streaming three years ahead of schedule, it took Netflix more than a decade to reach that , and Disney is now estimating as many as 260 million plus subscribers by 2024.
And where I think Disney has the competitive advantage here over other streaming providers is because of that studio business and other content. You see, one of the biggest worries I have about streaming stocks is it is getting ridiculously expensive to produce all the content. We’re seeing it come through in lower profitability on Discovery, Paramount and even Netflix. But Disney, with the movie and cable studios…it’s able to continuously pump out new shows people want to see.
Revenue is now back to pre-pandemic highs and was up 23% year-over-year last quarter on a jump in theme park attendance. You’ve got streaming still doing well, the return of theme parks and it still has the studio box office revenue growth to look forward to when that gets back to normal.
The one weakness here is profitability. Spending has increased significantly on content and streaming and of course the pandemic hit profitability but it’s now starting to turn around. The operating margin of 5.5% last year is already back up to 8.3% in the last quarter and should continue to improve this year.
Shares of Disney have come way down over the last year, crashing 42% from the peak, and now trade for just 2.6-times sales. That’s the lowest since 2012 and a 25% discount to the five-year average. This is all happening as theme park sales continue to improve and the company becomes a cash flow machine.
How to Find the Best Stocks to Buy and Hold Forever
We’ll get back to the list but all you out there in the nation know, I’m not about to just drop a list of stocks to buy in your lap and say go at it! I want you to understand what I’m looking for here so you can make your own decision, do your own research and find the best stocks for your portfolio.
And I started with a top-down approach to investing, looking for the industries with growth that can carry all the stocks in the group higher over the next ten years . Even the best of the best horse buggy maker went out of business when Ford made his cars affordable to everyone , so I want to find the growing industries that are going to do more than survive over then next ten or 20 years.
For that, I looked at industry growth rates in data from the Stern School of Business at NYU. There are some great data sets available here for stock research and I’m looking for industries with strong revenue growth over the past five years but also ones with good expected earnings and revenue growth, so I can sort these and see we’ve got some strong industries here like biotech and pharmaceuticals, software and entertainment. That gave me a list of industries to focus on within the major sectors, helped me narrow down where I wanted to look for the best stocks to buy and hold.
Looking at all the stocks in those growth industries, I started looking for companies with a competitive advantage over peers in each. For this I looked for sales growth higher than the industry average over the last few years for an idea of which companies are able to take market share away from competitors . So that higher sales growth, it not only generally means higher profits and stock returns but it’s a great indicator of a moat for the company, that it’s doing something right compared to its competitors.
Finding the sales growth for a company is fairly easy. You can go here to Yahoo Finance and click on this Statistics tab for a lot of great information. Scroll down a little and you’ll find the revenue growth for the most recent quarter, here we see it’s 23% for Disney over the last year. Ideally though we would want a longer-term measure of growth so we can go back up to the Financials tab to see the company’s Income Statement. This always starts with the total revenue and we see Disney reported sales of $67.4 billion last year. If we take that divided by the 2018 number reported here of $59.4 billion then we see Disney has grown its sales by 13.4% over the past four years. Of course, now we would just want to compare that against competitors in the industry to see who might have that competitive advantage leading to faster sales growth.
Finally here before we get back to that list of stocks to buy, I’m looking for companies with a higher operating margin versus others in the industry. Those of you in the Nation know, the operating margin is my favorite measure of company performance, that operating income dividend by sales. It’s how much of revenue is left over after paying all operating and production costs and really shows how efficient management is at turning sales into profits.
Finding the operating margin is easy enough, again we go to the Statistics tab on Yahoo and scroll down to find the operating margin and profit margin. But again, it’s best to double-check this in the financial statement and it’s going to give you another measure for the stock. To get that operating margin, we just take the operating income divided by total revenue for that year. Here we see Estee Lauder booked just over $3 billion in operating income against $16.2 billion in sales for a margin of 18.5% last year. Now you can compare that against competitors to see who is most profitable but I also like comparing it against the company’s own history to see if it’s getting more or less profitable. If we do that for Estee Lauder here with operating income of $2.28 billion and sales of $13.6 billion in 2018, we get an operating margin of 16.6% which means not only is the company growing sales but it’s getting more profitable at the same time.
The Best Stock in the Materials Sector
In the materials sector, Air Products, ticker APD, isn’t a company you hear about but the $54 billion chemical and gas company is essential to industrial activity. APD owns over 1800 miles of gas pipeline, serves over 170,000 customers in bulk and packaged gases and has business in 50 countries.
APD has long-term contracts with many of its customers because the industrial gases it supplies are so critical to production, its customers want to lock-in that supply. That means customer switching is non-existent and APD has a global scale no other company can match in the industry.
Shares are down 23% from the recent high just on overall market weakness but management actually reaffirmed its full-year earnings outlook. While most companies are lowering their 2022 guidance, sales were up 18% for APD in the second quarter and full-year sales are expected 17% higher to $12.1 billion.
Shares are down to 4.8-times on a price-to-sales ratio after the selloff, the lowest valuation since 2018 and a 10% discount to the five-year average. It’s not as cheap as some of the growth stocks on the list but business is so good that investors aren’t selling out of APD like they are other stocks.
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My Favorite Fintech Stock to Buy
SOFI Technologies, ticker SOFI is one of my favorite growth stocks and our buy-and-hold pick for the financials sector.
And OK, now before I get all kinds of comments on how SOFI is a terrible stock because it’s down over the last year…Nation, you cannot judge the future of a stock by looking at its past. That’s like forever swearing off Apple products because you bought the iPod socks in 2004 .
I wasn’t telling you to buy these growth stocks like SOFI last year when they hit ludicrous speed levels of valuation …that was some other yahoo on YouTube or some 15-year old on TikTok . With the stock down 70% though, it’s still the same growth company but now at a valuation that makes it a good investment.
SoFi started as an online student loan refinance platform but has evolved into a full service, fintech wallet and I believe is one of the best positioned for the future of digital banking. Where other fintech platforms like PayPal and Upstart are still trying to bring on products and services, SoFi already has a lead in everything finance from insurance to credit, investing and banking.
A big part of this was the company’s approval for a banking charter through its acquisition of Golden Pacific Bancorp that closed earlier this year. Because most other fintech companies don’t have a bank charter, they can’t offer services like checking or savings and don’t have access to low rates like a traditional bank. This really does put SoFi way ahead of the competition and the company is going to be leveraging that for growth!
The company reported 87% growth in new members last quarter to almost 3.5 million and while the percentage increase is slowing, that is amazing growth at that scale. To put that into perspective, the company’s closest competitor Ally Financial grew its customer base by just 11.7% last year.
SoFi grew revenue by 63% last year to over a billion-dollars and more importantly, became earnings positive on an EBITDA basis with $30 million in earnings before interest, taxes and depreciation.
Management has guided to 55% growth in revenue this year to nearly $1.6 billion and a six-fold increase in adjusted earnings but what is really powerful here is take a look at that change in the EBITDA margin from 3% in 2021 to a projected 11% this year. That margin is the profitability, the amount of earnings as a percentage of sales so how efficient is management at converting those sales into profits.
I just started buying shares this year after the massive selloff from its IPO last year. The stock is now trading for just six-times on a price-to-sales basis for a company growing revenue by 50%-plus a year. Of all the stocks on this list, SOFI is one of my top three for long-term growth.
The Top Tech Stock to Buy Now
It was a tough choice to pick just one stock in the Tech sector but I’m going with size and scope in Alphabet, ticker GOOG.
Alphabet dominates the online search market with 80% market share and that extends to a network effect across YouTube and its Android ecosystem of apps. Add in growth from cloud services and it’s hard denying the company’s leadership in tech.
Even on some weakness in advertising, revenue grew 23% last quarter and is expected up 15% this year and next. That’s 15% revenue growth on a scale of $300 billion a year. It’s profitability that’s really impressive though. The operating margin has grown to 30% from just 22% in 2019, producing $82 billion in operating profits a year.
And with Google, besides just that profitability and growth, I think there is a lot of unlocked value here. Buying the shares, you’re paying for the main search, cloud and YouTube business but I don’t think the market has priced in anything from the ride-hailing service or a lot of the special projects Google owns. So you’re getting all the “Other” businesses like Waymo, DeepMind and Calico, it’s life-extension project, these are all like lottery-ticket bonuses on top of the return on search and YouTube.
Shares are down 25% in the selloff this year and this is another one with a multi-year low in valuation. Google is now at 5.7-times on a price-to-sales basis, a 15% discount to its five-year average and an even bigger discount on a price-to-earnings basis. This is a company generating $69 billion in free cash flow a year with a massive share repurchase program and $20 billion in cash.
Now only being able to highlight one stock in each sector, obviously I had to leave a lot of great stocks off the list but I want to get your opinion on this, which stocks are you buying for that long-term, buy and hold strategy? Scroll down and let me know in the comments, which stocks do you think I should have included?
The Top Buy and Hold Stock in Consumer Discretionary
Consumer Discretionary was another tough sector to pick just one stock but I’ve got to go with Amazon, ticker AMZN, for a lot of the same reasons as Google.
Amazon dominates in its two core markets with nearly 60% of the U.S. ecommerce market, a number no other company even comes close to matching . Amazon also controls a third of the global market for cloud services, 50% more than its next largest competitor.
And when you’ve got that kind of market control, it’s an advantage the company can use across all its products and services. Revenue has doubled in the last three years to $470 billion and is expected to hit $613 billion next year.
And just like Google, I think the market is underestimating shares of Amazon. For a share of Amazon, you’re basically paying for the valuation on the core ecommerce platform and its Amazon Cloud Services business but you’re also getting all its Alexa Venture investments in AI, voice and other tech innovations.
And there’s evidence the core valuation itself may be undervalued. Activist investor Dan Loeb made news February when he estimated a trillion in hidden value for the shares if you value the two segments separately in a split of the company. That would make it a $2.5 billion company or about double the current stock price.
I’ve always had trouble recommending Amazon because of the expensive valuation but after the recent selloff, it’s now down to a place I’ve never seen before. Shares trade for just 2.6-times on a price-to-sales basis, which is almost half the 2020 valuation. And while the 58-times PE ratio still seems high, it’s just a fifth of where the stock was trading in 2017 and less than half its five-year average so this one is actually in value stock territory.
My Favorite Energy Stock to Buy Long-term
Energy was a tough sector because of the recent surge in prices but I still like Chevron Corporation, ticker CVX, for a long-term investment.
Shares of CVX are up 72% in the last year on the back of a 63% jump in stocks across the sector and oil prices that have surged to $115 a barrel. And while I do believe oil will come back down to around eighty- or ninety-dollars a barrel, there’s one reason I think investors can hold on to Chevron and a few others.
This is a chart of the oil price needed to break even at the eight largest producers with the red dots the 2021 breakeven price. You can see, Chevron is among the lowest in the group, needing oil at just $50 a barrel to turn a profit. So even if the price of oil comes down, you’ve got companies like Chevron, RDS and Total that are still making a lot of money, even as others like Exxon struggle with profitability.
Chevron is taking advantage of the higher prices now to increase its share repurchase program, expected to buy back up to $3.8 billion of its stock in the first half of the year alone. That combined with a 3.3% dividend yield helps to support the case for the stock even though it is trading a little expensive right now. Shares are trading for 1.9-times sales or about 20% above the five-year average but again, cash flow and profitability is there to support the stock and investor returns even if the price of oil comes down.
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Don’t Miss this Buy and Hold Stock in Industrials
Being an old Iowa boy, I had to go with Deere & Company, ticker DE, for our stock to buy in the industrials sector.
Deere books just over half its revenue from agricultural production equipment but also has some diversification through construction and road-building. Sales are up 18% in the last three years but could be coming into a period of super-normal growth on two factors. The average age of farm equipment is estimated around 17 to 20 years old with after-market parts demand increasing . Ag producers are seeing higher cash flows this year on a jump in grain prices and that alone sets us up for a renewal cycle in equipment.
More importantly though, Deere is leading a revolution in autonomous tractor and farm equipment. Upgrading the old driver models to the new technology will drive a surge in profitability for large operators and is well worth the cost of the new equipment.
Shares aren’t necessarily cheap here even though the stock is flat for the last year, it saw a big jump in the year prior and is now at 2.4-times on a price-to-sales basis. Still revenue is expected to grow 18% this year and continue to post double-digit growth so the recent lag in returns could be a good opportunity.
My Favorite Growth Stock to Buy Now
Healthcare is one of my favorite growth sectors and has one of my favorite growth stocks, Teledoc Health, ticker TDOC.
This is another one I started buying in January after the massive crash from last year’s price and I know a lot of you are going to look at the stock chart and immediately write this one off. Even with a cost-basis of $45 a share, I’m still down 28% on 1,300 shares but this is still the same growth company it was last year and this stock easily gets to $150 a share in the next three years.
Teladoc is the global leader in virtual healthcare with a provider network that covers 76 million U.S. patients and a billion member data points from traditional telehealth to remote monitoring and next generation primary care.
Obviously the last two years were huge here, like five years of growth, but the company was already growing at a solid rate. Membership growth has grown 33% annually since 2018 and the company booked nearly 15 million patient visits last year.
Revenue doubled last year and 80% of that is from recurring services so I like it for the stability even if growth for telehealth slows from last year’s faster pace. Longer-term, telehealth and virtual care is the future but I think the data is really the undiscovered value here, processing all that patient data for analysis and research.
And where just last year shares of Teledoc were the posterchild for those expensive growth stocks, the selloff has taken this one into really attractive territory. Through increased monetization and modest member growth each year, management has a three-year target for 25- to 30% annual revenue growth. That takes it to just over $4 billion in revenue by 2024 on estimates for $2.6 billion this year.
Shares of Teledoc are now trading for just 2.5-times on a price-to-sales basis. This is a stock that at one point traded for 17-times its sales and for well over $300 a share, now under $35 each and still growing by 30% a year. Even on a very conservative price multiple of five-times its 2024 sales target of $4 billion, that’s a $20 billion company for a 112% return to $146 per share.
The Top Stock to Buy in Utilities
For our forever stock in the Utilities sector, I’m going with NRG Energy, ticker NRG, and its 3% dividend yield.
The company is one of the largest energy producers in the U.S. with over six million residential customers and 14 gigawatts of generation across electricity and natural gas.
Even though it’s an independent provider, it still operates in that protected, regulated market of electric and natural gas so cash flows are extremely consistent. That’s helped management commit to a constant dividend growth while still being able to grow the company and share price as well.
The recent acquisition of Direct Energy is expected to produce over $300 million in savings and drive part of its strategic growth initiative, growing the dual fuel business and streamlining production . That should result in even stronger cash flow and higher dividends.
The acquisition has already come through in higher revenue, doubling sales in the most recent quarter, and the shares are trading for just 0.42-times on a price-to-sales basis. It’s a strong value stock with a stable dividend and long-term growth.
Don’t Miss the Entire Stocks to Buy Now Series