At first glance, 2020 has left investors with very few good options. Right now, it seems like there are only overpriced tech companies, hyped-up SPACs (special purpose acquisition companies) and slow-growing duds on the market. However, if you look deeper, several long-term stocks emerge from the crowd with plenty of potential.
Of course, long-term stocks aren’t quite for everyone. Just like vigorous exercise or daily tooth-brushing, staying invested for the long haul takes some willpower. There’s always the temptation to do something in finance, especially when others are raking in profits. Alternatively, you could invest in the S&P 500 and hope that it doesn’t go through a prolonged bear market.
But for those willing to be patient, picking long-term stocks with potential is an excellent way to add growth to a diversified portfolio. So, here are eight of the best long-term stocks that can get you started:
- Pfizer (NYSE:PFE)
- Palantir (NYSE:PLTR)
- Teladoc (NYSE:TDOC)
- Airbnb (NASDAQ:ABNB)
- Paypal (NASDAQ:PYPL)
- Etsy (NASDAQ:ETSY)
- Verisk Analytics (NASDAQ:VRSK)
- First Republic Bank (NYSE:FRC)
The Best Long-Term Stocks to Buy: Pfizer (PFE)
Revenue Growth through 2022: 2.1%
The first name on my list of the best long-term stocks is Pfizer, a company that has been in the news quite a bit lately.
However, Pfizer wasn’t always a high-potential company. After years of success in small-molecule drugs like Viagra and Zoloft, the firm managed to miss the biotech revolution completely. Today, four of the top five grossing drugs are biologics and Pfizer makes none of them.
Yet, things are starting to change behind the scenes for it and, in turn, PFE stock. Under its new CEO, Albert Bourla, the company has quietly grown its pipeline of biotech-related drugs. Plus, even Pfizer’s novel coronavirus vaccine — made in partnership with a German biotech startup — has demonstrated its willingness to try new routes.
So, the world’s second-largest pharma company now has 13 biologic, biosimilar or vaccine candidates in Phase-3 trials, versus just eight small-molecule drugs. Analysts currently expect sales to grow 2.1% by 2022, a tidy reversal from the company’s decade of declining revenues.
Revenue Growth through 2022: 67.7%
Recently, the secretive government contractor Palantir has been a day trader’s darling. Since its initial public offering (IPO) in September, retail investors have poured cash into PLTR stock and its call options with get-rich-quick dreams.
But don’t get caught up in the feeding frenzy. Instead, consider Palantir’s steadily growing customer base as a sign of the firm’s potential as one of the best long-term stocks.
Palantir and other government-based contractors need time to grow. Unlike software products — where each additional sale costs virtually nothing — software solutions require sales, implementation and support teams. It’s the difference between installing antivirus software on your home PC versus hiring FireEye (NASDAQ:FEYE) to secure your company’s networks. Once a software solutions company digs in, however, the revenues keep pouring in. Few enterprises want to uproot their analytics systems, even if a somewhat cheaper alternative comes around.
Palantir clearly understands what’s at stake – they’ve aggressively courted government and private-sector companies to keep the first-mover advantage. So, as these contracts mature, the company should start profiting. In turn, so will long-term investors.
Revenue Growth through 2022: 142.4%
In October, Teladoc completed its merger with Livongo, creating the only telehealth company that also offers long-term health monitoring. Compounded with its growth potential, TDOC stock looks like one of the stronger picks on this list of the best long-term stocks.
However, before 2020, Teladoc’s growth wasn’t particularly fast: health insurers generally didn’t cover telehealth visits at parity and Teladoc made just $553 million in 2019 sales. Essentially, even if patients wanted telehealth, many doctors wouldn’t offer the service because of lower reimbursements.
It took the novel coronavirus pandemic to kick telehealth into high gear.
When the pandemic hit, things changed fast. Since March, the Centers for Medicare and Medicaid Services (CMS) added 135 remote services to the list of procedures that Medicare covers at parity. Private insurers quickly followed the U.S. government’s lead.
With insurance now offering more reimbursements for telehealth, companies like Teladoc have seen a massive interest boost. Analysts expect revenues to grow over 142% through 2022 and hit $2.6 billion. If Teladoc has its way, “call the doctor” will have a whole new meaning for investors.
Revenue Growth through 2022: 80.6%
Next up on my list of the best long-terms stocks is Airbnb. A decade ago, renting a weekend room in a stranger’s house might have seemed odd to most people. Today, not only can you rent your neighbor’s couch for the weekend, but the more adventurous can also find houseboats, luxury islands and even castles to rent.
What’s more, Airbnb has recovered faster than rivals from the novel coronavirus pandemic. For instance, bookings in Q3 were down just 18% year-over-year (YOY), compared to Marriott’s (NASDAQ:MAR) 57.3% and Hilton’s (NYSE:HLT) 76.4%. Plus, leisure stays — a mainstay of the company’s business — have rebounded far faster than destination or business travel.
And growth at Airbnb should keep accelerating. By 2022, analysts expect the company’s revenue to soar 80.6% to more than $6 billion. Profits should follow soon after.
That’s because, unlike other “share-your-stuff” companies like DoorDash (NYSE:DASH) or Lyft (NASDAQ:LYFT), Airbnb mainly has the home-share industry to itself. The number two company, Vrbo — owned by travel giant Expedia (NASDAQ:EXPE) — is only about one-third of Airbnb’s size. That means that even though ABNB stock has already had a blockbuster IPO, it still has more room to run. Fair value could be as high as $200 as investors realize this name’s underlying strength.
Revenue Growth through 2022: 41.6%
Sometimes, growth doesn’t have to be flashy. That’s the magic of PYPL stock, one of the most underrated e-commerce plays of 2021.
Early on, the company wisely ignored the world of retail point-of-sale (POS) systems. It was certainly tempting to take on incumbents — for instance, upstarts like Square (NYSE:SQ) tried squeezing their way into the fat-margin market. But, the decline of in-person shopping as well as aggressive price cuts by incumbents left new players struggling to make any money.
Instead, PayPal focused on online payments — an area of much higher potential. The results were spectacular.
Today, the company earns over $3 billion in net profits, representing a near 250% return on capital. What’s more, each new e-commerce success (like Etsy) has driven PayPal’s profits even higher. So, you can see why it’s made it onto this list of the best long-term stocks.
Speaking of long-term potential, PYPL has already doubled in 2020. Plus, even more gains could be on the way. The company plans to expand into cryptocurrency, “buy-now-pay-later,” and overseas payments.
Revenue Growth through 2022: 35.2%
Where else can you buy a hand-crocheted mug warmer to spruce up your home office? Throughout the novel coronavirus pandemic, Etsy has helped buyers worldwide answer those essential life questions and more.
As a marketplace for handmade arts, crafts and jewelry, Etsy has found its “anti-Amazon” (NASDAQ:AMZN) niche within the e-commerce world. The company now boasts over 2.5 million small sellers, creating a wide moat that other e-commerce giants would struggle to replicate.
Additionally, its financials have also looked just as good as the hand-painted golf balls I’m about to order from them. Revenues in Q3 jumped 128% from the year before and net income quintupled, up 520%.
You can thank veteran CEO Josh Silverman for keeping the company’s financial house in order. Even after the pandemic ends, growth appears set to continue. Analysts expect the company’s revenues to climb to about $1.8 billion and earnings to reach $2.17 per share.
Investors, however, will need to buy ETSY stock for the long term. At 77.5 times forward price-earnings, the company remains one of the pricier (though profitable) e-commerce plays out there. So, people looking for gains will need to stick around in order to see the results from this pick of the best long-term stocks.
Verisk Analytics (VRSK)
Revenue Growth through 2022: 13.3%
Up next on my list of the best long-term stocks is VRSK stock. If buying pricey e-commerce companies isn’t your cup of tea, perhaps Verisk Analytics could be for you. This understated analytics company focuses on the insurance segment, where it offers tools for P&C (Property and Casualty) insurers to model out risk.
Verisk also provides analytics in insurance claims, particularly in fraud detection and cost estimation. In other words, they’re the ones using big data to understand whether my neighbor’s $5,000 claim for the hand-painted golf ball through his window sounds reasonable.
Jokes aside, while the business model sounds as interesting as watching paint dry, its financial results have been nothing but sensational. Since 2010, revenues have grown well over 100% as it bought out competitors and expanded within P&C insurance. Its net margins of 25.8% are even higher than Apple’s (NASDAQ:AAPL) 21%.
And the company shows little signs of slowing down. In September, VRSK acquired Franco Signor, a Medicare Secondary Payer (MSP) service provider. The acquisition gives Verisk a stronger footing into the lucrative-though-unflashy world of Medicare compliance.
That said, investors will need to buy Verisk for the long run. Its consistent earnings mean there’s little reason to expect higher valuation multiples. Instead, stock gains will come from the steady march of the company’s growing bottom line as it expands into new insurance businesses.
First Republic Bank (FRC)
Revenue Growth through 2022: 21.2%
Last on my list of the best long-term stocks is First Republic Bank, a name that offers some refreshing change from other underperforming bank stocks. Since founding the firm in 1985, CEO James Herbert II has grown the upstart into a conservatively run $133 billion bank.
In the banking industry, loan quality matters. That’s because banks operate on high leverage — even a minor 2% to 3% increase in delinquent loans can wipe out profits for a year or more. But First Republic has mostly avoided the siren’s call of risky growth. Instead, the company has focused on slower expansion among high-net-worth individuals and families.
The company’s returns have reflected these conservative principles. Today, it earns a near 10% return on tangible equity, making it an outlier among big banks for its profitability.
FRC’s moderate size also makes it a tempting long-term play. With $133 billion in assets as of its September quarter, the company can easily continue the decades-long growth trajectory. And even with its new generation of managers, investors can expect Herbert’s conservative hand to keep pushing for the tried-and-true strategy.
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.