by Lawrence Meyers | December 1, 2011 1:05 pm
I’m always on a quest to find stocks that can be bought and held for many, many years. These are companies that, for some reason, are so intrinsic to our experience as human beings that they will never go out of style. More to the point, we will always be buying what they are selling. That means these companies always will be profitable, be growing and have cash flow to either keep growing or keep giving back to us in the form of dividends. I tend to focus my selections on domestic stocks, but this time I thought I’d cast a wider net and hunt globally to see if I could find any candidates.
My first choice is a company I’ve known about for more than 15 years. In fact, it was one of the first stocks I ever purchased. Teva Pharmaceutical Industries (NASDAQ:TEVA) has quite a history. Based in Israel, Teva had been a big player in the generic pharmaceutical industry for some time when it began developing its own multiple sclerosis drug, Copaxone. That diversified its business model. Since then, Teva has acquired a number of smaller firms while ramping up its generic and proprietary businesses.
Today, Teva is one of Israel’s largest companies and is one of the biggest generic players in the pharma world, offering 1,450 generic drugs in more than 60 countries. Management always has been ahead of the curve and managed the company beautifully. With a five-year annualized projected growth rate of 10%, well more than $3 billion in annual free cash flow and a 1.8% yield, I see Teva as so far ahead of the competition that it won’t be giving up any ground for a very long time. TEVA shares are trading near historic lows of its P/E range, so it’s a great time to get in.
Black gold, commonly known as oil, is a must-own asset in any portfolio. Rather than own the volatile commodity outright, I prefer to own the folks who explore and produce it. Petroleo Brasileiro SA (NYSE:PBR), commonly known as Petrobras, is pretty much the only game in town in Brazil, where it produces, refines, trades and transports the black stuff.
As with the big oil companies here in the U.S., Petrobras makes billions upon billions every year in profits. It carries low interest debt (5%), pays a little dividend (0.7%), and its net margins of 16.5% exceed those of all of our companies, which are all 11.8% and under.
I’d also take a good hard look at Diageo PLC (NYSE:DEO). There’s always going to be a demand for booze (Prohibition certainly proved that), and that demand is growing internationally. Diageo owns some of the world’s most famous brands, including Johnnie Walker, Tanqueray and Captain Morgan.
As you would expect, five-year annualized growth exists, and it’s in the 10% range. Diageo routinely produces between $2 billion and $3 billion annually in free cash flow, returning about half of that to shareholders in the form of a nice 4% yield.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned stocks.
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