Investing for the long term is one of the oldest concepts on Wall Street. Even though it doesn’t always work out in the end for all stocks, it is often a viable strategy. The trick to finding the best long-term stocks is to find a trend that is sustainable for more than a decade. After you find this trend, identify the winning companies within it. The winners generally have a sustainable advantage, strong management and proven winning strategies. Companies with these properties comprise the best long-term stocks to invest in.
One of the most popular investment themes on Wall Street right now is the adoption of technology on a global scale. So far, we’ve had the concept of digitization, but the novel coronavirus crisis put that into hyper-gear. Since the whole world had to shelter in place, almost everyone had to get online. While this is nothing new to a lot of us, there were even more people who had never done it before, and this also extends to businesses. Newbies had no choice but to embrace the migration and many will never revert to the old ways. There is no doubt that doing things online or electronically is much more convenient than in person. In many cases, it is also cheaper.
Two of the three companies we highlight today are intrepid teams that blazed new trails. The roads have not been easy for either of them, yet they executed with extreme confidence. They have amassed many critics, but so far have managed to silence them. Wall Street totally respects their efforts, so they are likely to continue to win in the long run. If the equity markets are higher in the future, then these two long-term stocks will also be leaders. The third option for today’s discussion falls under a completely different story than the heavy tech focus of the other two, but it is also destined for higher prices:
With all of that in mind, let’s take a look at what makes each of these among the best long-term stocks to buy now.
Best Long-Term Stocks to Buy: Amazon (AMZN)
When Amazon started, brick and mortar retail experts mocked it. Yes, it was a clumsy start, but thanks to an unbelievable management team, it disrupted almost every business on the planet. This is my favorite company and, in my book, there has never been a better leader than founder Jeff Bezos. AMZN stock is the one I would suggest owning for ages. The company has proven that it is not afraid to take risks and, more importantly, it knows when to cut bait. Its successes have been huge and its failures limited. Overall, there is no reason to doubt AMZN stock going forward.
The company’s stock had its staunch critics for a decade and they mainly had issues with its spending. Even as late as last year, the experts insisted that it wasn’t invest-able because it was a spending year. I correctly wrote about that notion as being the very best reason to own the shares because usually when they spend money, they find pots of gold on the other end. Case in point, the stock is now almost 50% higher and now the experts can’t have enough of it.
Ultimately, every big dip in Amazon is a buy-worthy opportunity, so it’s a matter of time frame. When considering AMZN stock among the best long-term stocks to buy, I’m looking at it as a decade-plus long investment. This stock will lead markets into the future. The rush to its online marketplace during the coronavirus-induced quarantine was insane. The company hired about 200,000 new employees to keep up with the increase in demand. Some call it lucky, but I say Amazon made its own luck.
The digitization wave is happening on the backbone of the Amazon AWS unit. Microsoft (NASDAQ:MSFT) and Alibaba (NYSE:BABA) are catching up here, but by this time next year, Amazon would probably have a new cash cow to milk.
While I am not a super fan of TSLA stock, I don’t let my skepticism stand in the way of trading it on the bullish side. The long-term thesis for Tesla is tricky, which is why investors’ opinions of the stock are largely divided. The primary instinct is to judge it as a car company. From that perspective, it is aggressively expensive. But the argument against that is that Tesla is a technology or even an energy company. That is where much of the division lies with how investors treat the stock.
For now, I will accept the experts telling us it is so much more than a car company. But soon enough, I think investors will demand to start seeing headlines that are not auto or truck related. Otherwise, there should be a big repricing in Tesla’s stock to reflect the death of the other branches of the story. For example, last year Tesla CEO Elon Musk promised that the company would have 1 million self-operating robo-taxis by now, but there hasn’t been an update about the progress there.
Is it still on the docket for this year or at all?
Tesla deserves a lot of credit for being the first mover in popularizing electric propulsion. Many have failed at it with their funny shaped cars. Tesla vehicles are a status symbol now … so long are the days of pickle-shaped e-cars. TSLA stock has its share of fans on Wall Street, most of whom are die-hard. I’ve been on the receiving end of their ire on occasion over social media. Such commitment from the bulls likely will carry momentum for decades. Plus, there are institutional owners that will never sell their shares as they see unlimited potential in the upside from here. Not to mention Mr. Musk himself owns about 20% and he is in it to win it.
The strategy for TSLA stock is easy because investors who believe in it should just own it for the very long term. Those who don’t believe in it should step out of the way. This may turn out to be another befuddling stock like Amazon was for a decade because the bears finally gave up their mission.
The final pick on this list isn’t actually a stock. It’s an exchange-traded fund. And while some might consider that cheating, the promise of this fund makes it unavoidable on a list of the best long-term stocks. Gold was first used around 700 B.C., so it has been around the block a few times. Unlike companies, its popularity doesn’t depend on its utility. It will continue to have great value for as long as people love it and right now, they do. The love affair with gold is strong, even though the price fluctuates a bit over time. The great run of 2011 ended in bitter disappointment at the height of its popularity. It is not a fad, but sometime traders treat it like one. They get carried away with it one way before prices correct.
After the 2011 highs, GLD fell almost 50% into the low of April 2016. Since then, gold prices have rallied more than 60% with no let up in sight. The bulls have momentum and they can overshoot much higher even from here. However, this time it’s somewhat different because of what central banks are doing. Governments are killing the value of cash with aggressive stimuli, so value needs to find somewhere else to live. Gold is the best place to hide and everyone should own some. It is not practical for a lot of people to actually own the precious metal, so the next best thing is to invest in the GLD ETF. It is liquid enough and tracks the price of gold fairly well.
The options markets make it even easier because there are hundreds of ways investors can establish a bullish strategy in gold with little out of pocket expenses or with fairly high degree of success. These are not the sexiest trades, but they have the odds on their side. In this case, boring is beautiful and there is nothing more satisfying than winning without breaking a sweat. My favorite strategies involve selling puts or put spreads 20% below current levels near $130 per share. This lets time do the heavy lifting.
The worst case in that scenario is that you buy GLD at a huge discount to current price. The $130 per share level started this whole rally in gold back in March. For those who don’t like to sell spreads, they can buy an in-the-money call spread and keep time on their side.
In essence, AMZN stock is the sure thing on this list, TSLA stock is the wild card and the GLD ETF is the hedge against the runaway central banks. In very rare cases, investing for the long-term turns out to be a disaster, but generally speaking a thoughtful thesis usually yields profits with patience. I prefer buying on dips, especially in Tesla for fear that the market in general is precariously perched up here. It is wrong to have Wall Street at all-time highs, while Main Street is at record unemployment levels.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities.