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“Buy and hold” sounds like a simple investing strategy, but it only works if you’re confident in your stocks for the very long haul. Titans topple all the time, and truly secular investments are few and far between.
To help you find a few stocks with the potential to deliver market-beating results for decades or maybe even centuries, we asked a panel of your fellow investors here at The Motley Fool for their best long-term ideas.
Read on to see why they could see themselves holding shares of Johnson & Johnson (NYSE:JNJ), Retail Opportunity Investments (NASDAQ:ROIC), and Intuitive Surgical (NASDAQ:ISRG) for many decades to come.
Innovation never gets old
Matt DiLallo (Johnson & Johnson): Healthcare juggernaut Johnson & Johnson has been helping make the world a healthier place for the past 130 years. One of the keys to its longevity is its credo, which a member of the founding family crafted in 1943 to guide future decision-making. That credo puts those who use its products first and states that everything done to meet their needs must be of high quality. It also spells out its commitment to employees, communities, and stockholders, with the latter aim to make a sound profit.
One the credo’s directives is that the company “must experiment with new ideas.” It continues: “Research must be carried on, innovative programs developed, and mistakes paid for. New equipment must be purchased, new facilities provided, and new products launched.” Those marching orders have led the company to embraces innovation, which has enabled it to develop a steady stream of new ideas, products, and services over the years that have delivered consistent growth.
The company’s commitment to innovation runs deep. In fact, it currently has a family of complementary teams that comprise Johnson & Johnson Innovation, through which it collaborates with innovators to exchange ideas and provide support to bring meaningful new solutions to the world.
While the world will probably change dramatically over the next hundred years, Johnson & Johnson’s focus on innovation should help it stay on the cutting edge in the decades to come, positioning it to continue creating value for investors as an ultimate buy-and-hold stock.
This company’s moat may be insurmountable
Sean Williams (Intuitive Surgical): Finding a stock to hold for the next 100 years is a tall order, but one company set to only get better with time, like a fine wine, is robotic-assisted surgical system developer and manufacturer Intuitive Surgical.
Intuitive Surgical has three factors that make it a company to consider stashing away for your great-great-grandkids.
First, the company is poised to benefit from a growing global elderly population. Intuitive Surgical, which is focused on soft-tissue surgeries, has been working to expand its market share in thoracic and colorectal surgeries, which are far more common in seniors than in younger adults. In the U.S. alone, the Census Bureau expects the elderly population, defined as ages 65 and up, to grow from 48 million in 2015 to 88 million by 2050. A growing global population that’s living longer provides a broader patient pool for Intuitive Surgical with each passing year.
Secondly, the company’s moat looks almost insurmountable. As of the end of 2016, Intuitive Surgical had more than 3,900 of its da Vinci surgical systems installed worldwide since the system the Food and Drug Administration approved the system in 2000. You could combine all of the company’s competitors together and they’d hardly hold a candle to Intuitive Surgical’s installed base. Not to mention that it would take years for competitors to build community rapport, and train surgeons, to the extent Intuitive Surgical has.
Last, but possibly the most important factor of all, is that Intuitive Surgical’s margins will only improve over time. The company has three ways it generates revenue: the sale of its da Vinci systems, the instruments for each procedure, and the servicing of its machines. The sale of its pricey machines is actually low margin, since it costs a pretty penny to build each one. The bread and butter for the company is its recurring instrument and service sales. The bigger its installed base, the higher its instrument and service revenue, thus boosting margins.
Intuitive Surgical is a company set up to succeed well into the 22nd century.
Retail assets for the long run? Are you crazy?
Anders Bylund (Retail Opportunity Investments): It might sound silly to invest in a retail-oriented real estate investment trust these days. The American mall is a dying breed, right? Well, Retail Opportunity Investments specializes in a different retail sector.
The company buys dilapidated strip-mall properties with lots of empty storefronts, remodels them, and then negotiates long-term deals with a new set of store occupants. For example, the company took over a nearly abandoned strip mall in Pleasant Hills, Calif., where 43% of the retail space was unused. A quick remodeling later, the occupancy rate had been boosted to 100% and ROIC’s annual return on that investment had increased by 50%.
While that’s an extreme example, this is the business model ROIC runs. The keystones of this concept involved finding poorly managed shopping properties in affluent, upscale neighborhoods and then exploiting that valuable location through aggressive deal-making. More than 97% of the company’s retail space is currently leased right now, up from 89% at the end of 2010. On average, ROIC’s properties have roughly seven years left on their lease terms.
This company is built for long-term growth and stability. If strip-mall retail goes out of fashion, I expect this experienced management team to shift its efforts into the next high-quality opportunity type. And when they retire, the company should be able to find and train capable replacements using the same playbook.
A century is a long, long time, but I’m certainly expecting to benefit from my ROIC shares for the next several decades at least.
Anders Bylund owns shares of Intuitive Surgical and Retail Opportunity Investments. Matthew DiLallo owns shares of Intuitive Surgical, Johnson & Johnson, and Retail Opportunity Investments. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Intuitive Surgical, Johnson & Johnson, and Retail Opportunity Investments. The Motley Fool has a disclosure policy.