For Millennials looking for stocks to buy now to hold until retirement, selecting stocks for the extremely long-term can be a difficult proposition. Even some of the best companies start running into question marks ten or 15 years in the future, but General Motors (GM), Wells Fargo (WFC) and Verizon Communications (VZ) are well-positioned to continue paying off for Millennial investors 40 years down the line.
Perhaps the most iconic long-term value investor of all time, Warren Buffett, always looks for stocks that have a durable competitive advantage in their respective markets. Not only do these three stocks fit the bill, Buffett’s Berkshire Hathaway (BRK.B, BRK.A) holds stakes in all three.
General Motors (GM)
The new restructured “lean and mean” GM currently trades at an incredibly low 5.1 PE and 5.4 forward PE. When growth is factored in, the stock’s PEG ratio is a minuscule 0.26.
Despite high hopes for Tesla Motors (TSLA), GM and Ford (F) have the U.S. auto market pegged for now. There seems to be some misconceptions out there that TSLA is the only game in town when it comes to electric cars. While TSLA has gotten a lot of attention for its Model 3, GM is also quietly rolling out its Chevy Bolt EV this year, which is expected to start in the $30,000 range and deliver a 200-mile electric driving range.
Sure, GM is not an electric car-centric company today. But the transition away from gasoline won’t happen overnight, and GM will certainly shift its mix to electric as the market changes. The biggest differences between GM and TSLA is that GM already has a huge market advantage, it is already extremely profitable and it has a stock that is trading at a historically low valuation.
Aside from GM’s durable competitive market advantage, relative lack of competition and solid stock valuation, the company also has another long-term trick up its sleeve: a 5% dividend. Even if the stock gains 0% over the next 40 years, a $50,000 investment today could balloon to $338,835 40 years from now if dividend payments are reinvested.
Wells Fargo (WFC)
The Federal Reserve’s decision to postpone the next interest rate hike has extended the low-rate misery for U.S. banks. The sell-off in bank stocks now has WFC trading at a PE ratio of only 11.8, near the bottom of its range since 1995.
The bad behavior of the big banks was one of the driving forces behind the financial crisis, but WFC navigated the chaos rather well. In fact, while most of its peers have been selling off assets left and right, WFC has tripled its total assets since the beginning of 2007.
There’s always a risk that low rates are the “new normal” in the U.S. market. But if you believe that this rate cycle is nothing more than an extended version of past cycles, rates will eventually go up and WFC can reap the full earnings benefits of its post-crisis shopping spree.
Verizon Communications (VZ)
Phone fads come and go– just ask Blackberry (BBRY) shareholders. As safe as Apple (AAPL)’s iPhone’s market position seems today, who knows what the “it” phone will be 20 years from now.
Regardless of which phone brand is trendy, phones themselves are not going anywhere. The barrier to entry to compete with VZ’s leading network is extremely high, and it would be very difficult for any newcomer to challenge Verizon or AT&T (T) for a top spot in the market. VZ’s stock is up over 17% so far in 2016, yet the stock still trades at a PE ratio of only 12.5.
Mix in Verizon’s lofty 4.2% dividend, and you’ve got the perfect recipe for a long-term investment.
Disclosure: As of this writing, Wayne Duggan had no positions in any of the stocks mentioned.
