Investing is best approached as a long-term game. However, finding a stock that you can hold indefinitely is tough. Forever is a long time, and a lot can go wrong from year to year, let alone over decades. But I will argue that there are forever stocks out there.
In fact, I can think of three good ones. I’ll break them down and show you how their simple but dominant business models make them potential cornerstones for any diversified long-term portfolio. Buy these stocks and kick back while they continue creating returns for years to come.
1. Buffett’s favorite beverage company
I’m not sure there is anyone in the world who doesn’t know about The Coca-Cola Company (KO 0.36%). From its namesake Coca-Cola soda to more than 200 other brands, the company sells its products virtually everywhere you can purchase a beverage. Coca-Cola’s command of retail shelf space is the company’s competitive advantage. Coca-Cola brands get top-notch shelf real estate wherever they’re sold, which not only protects current products but helps Coca-Cola quickly grow new ones.
Beverages are a basic necessity, so it’s not likely that bottled and canned drinks will go out of style anytime soon. In fact, Coca-Cola’s continued growth shows the opposite: The company does $42 billion in annual revenue and still has just a 6 percent volume share of beverages sold in emerging markets, meaning there’s still a wide open field of opportunity for long-term growth. Perhaps that’s why Coca-Cola is one of Warren Buffett’s favorite stocks; his company, Berkshire Hathaway, dedicates about 7.4% of its portfolio to Coca-Cola.
Best of all, Coca-Cola will pay you to be a shareholder. The company has paid and raised its dividend for 60 consecutive years. Coca-Cola lets others do its bottling work, which creates higher profit margins, converting about $0.29 of each sales dollar into free cash flow. Those profit margins and long-term revenue growth should continue driving steady returns and dividend increases for the foreseeable future.
2. Improve your portfolio with home improvement
Stick around long enough and you’ll see retail companies come and go (does anyone remember Sears?). But The Home Depot (HD 0.41%) probably isn’t going anywhere. It’s the largest home improvement retailer in the United States, an industry it dominates with chief competitor Lowe’s.
Home Depot’s massive size — it does more than $157 billion in annual revenue — helps it source and sell goods at lower prices than the competition. Companies like Sears failed because they couldn’t adapt to e-commerce, but Home Depot has successfully integrated it into its business.
The great thing about home improvement is that it’s chock-full of repeat business. The same house will be repainted and remodeled over and over again over the years, and that’s not even factoring in new construction. A home is the largest expense most people have in their lifetimes, which creates an emotional bond between people and their homes, so many people gladly spend money on them.
Home Depot’s been very good to its shareholders — the stock would have turned a $10,000 investment into more than $161 million over its lifetime through price gains alone. Home Depot is a huge company today, so don’t count on a repeat of those returns.
However, the company produces more than $10 billion in cash profits each year, and much of that goes to investors as share repurchases and dividends. Management has paid and raised its dividend for 13 years. Get some Home Depot stock and stash it away for the foreseeable future.
3. Welcome the Mouse into your portfolio house
You can ask your parents, grandparents, or kids what their favorite movie from The Walt Disney Company (DIS -0.41%) is, and they’ll probably have an answer. It’s an entertainment company that’s captivated people for generations.
Disney is also a sprawling conglomerate: It owns television networks like ESPN and ABC, movie studios like Pixar, Marvel, and Lucasfilm, theme parks and cruise lines, and streaming services like Disney+ and Hulu. Disney is bringing in more than $82 billion in annual revenue.
But Disney has some short-term challenges it’s working through. The company invested billions in launching its streaming service, including merging with 21st Century Fox in a massive $71 billion deal. Disney’s balance sheet is still recovering from such a significant move, which includes management cutting the dividend and halting share repurchases.
It’s not ideal, but Disney+ has already amassed 164 million subscribers since launching in November 2019, not including the 24 million people subscribed to ESPN+ or the other 47 million Hulu subscribers.
Disney will emphasize monetizing its massive audience as it grows larger, which could position the company for an upshot in earnings growth over the long term.
But what makes the company a forever stock is its unbeatable intellectual property portfolio. Much of Disney’s content is timeless, spanning generations. The adults who grew up with Luke Skywalker and Star Wars are now watching the movies with their kids — both the classics and new movies.
Don’t let Disney’s current struggles trick you into writing off the Mouse; Disney will stay relevant.
Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Home Depot, and Walt Disney. The Motley Fool recommends Lowe’s Companies and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long January 2024 $145 calls on Walt Disney, long January 2024 $47.50 calls on Coca-Cola, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.