by Lawrence Meyers | February 19, 2014 12:48 pm
There’s a certain category of stocks that I consider stocks to buy and hold until the zombie apocalypse … or 30 years, whichever comes first.
These stocks to buy are so totally tied into the human experience that it would basically take the world’s population becoming zombies for them to cease doing business. They’re great investments because you don’t have to spend all of your time worrying about when to buy and when to sell.
So, which are the best stocks to buy and hold forever?
The first is Chevron (CVX). With certain companies, and this includes Chevron and other big oil stocks, I’m not actually looking for EPS growth. Instead, I’m interested in the role CVX stock plays in the human experience.
I’m fond of saying that the world will always need energy, that our need will only increase over time, and that the energy we will need the most will be from fossil fuels. Oil is the past, the present and the future. Entire geopolitical landscapes are shaped by oil. It heats our homes; it fills our gas tanks; it’s used for plastics and polymers. You cannot escape oil. I don’t care what the environmentalists say, neither solar nor wind will ever come close to the efficiency of fossil fuels.
Chevron handles processing, transport, storage, marketing, exploration, development and production. CVX does it all. It is even involved in coal, has some insurance and real estate activities, and manages interests in power assets. CVX has $45 billion in cash against $18 billion in debt. That $27 billion in net cash translates to about $13 per share, which puts CVX stock at about 9x estimates.
CVX stock throws off anywhere between $8 billion and $15 billion in free cash flow each year. That kind of FCF makes Chevron very well-positioned for the next 30 years. The bottom line: CVX stock is a no-brainer when it comes to stocks to buy.
AutoZone (AZO) may not be a name that you expect. But think about just how many cars are on the road and how many new and used cars get purchased every year. Then think about complex these machines are, and how many parts there are in each car.
Autos will always be with us, every machine eventually gets older, and every machine eventually needs parts. That’s why you want to go with a company that has 5,109 stores in the U.S. and Mexico. Yet besides all the parts it sells, it also offers tons of discretionary auto products like air fresheners, floor mats, performance products, and stuff you see at your local car wash.
It also offers commercial credit to help its retailers, and has an automotive diagnostic and repair software program. How nice of AZO to offer a product that helps you decide which of its other products to buy.
Of all the auto part companies, AZO stock has the best valuation and is still growing strong. While it does sit on $4 billion in debt, it’s cheap debt (3% interest), and has a $126 million cash backstop. Most of all, though, it has the kind of FCF that I so love, putting out between $900 million and $1 billion annually. AZO stock continues to power forward on 13.82% long-term projected growth, and trades at a FY14 P/E of just 17.
Finally in our list of stocks to buy and hold forever, we have the great Berkshire Hathaway (BRK.B). The main appeal actually isn’t that Berkshire Hathaway is run by Warren Buffett, though I’m sure people will worry when he’s gone. The core insurance business is thriving, and it continues to power BRK.B stock.
A properly managed insurance company will always yield strong and consistent yields, and nobody is better at insurance than Berkshire. The company has been doing it for so long. But surrounding Berkshire’s insurance company are dozens of other companies that I believe more accurately represent America than the Dow Jones 30.
The pure diversification of businesses helps insulate BRK.B from long-term pain. In fact, banks went to Berkshire to shore up their balance sheets during the financial crisis. That’s a company you want to be with.
As of this writing, Lawrence Meyers was long BRK.B. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at email@example.com and follow his tweets @ichabodscranium.
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