- The market is incredibly volatile right now but these long-term stocks to buy and hold work well in any economy.
- Roper Technologies (ROP): This software conglomerate is a shrewd way to profit from long-term technological trends.
- Grupo Aeroportuario del Pacifico (PAC): Airports are an irreplaceable infrastructure asset with fantastic economics.
- McCormick (MKC): Younger consumers want more interesting foods and flavors; McCormick is delivering.
- Texas Instruments (TXN): Texas Instruments is a diversified stable way to play the technology industry.
- Hingham Institution for Savings (HIFS): Little-known Boston area bank has a unique formula for growth.
- Novo Nordisk (NVO): Novo Nordisk is well-positioned to benefit from aging and other demographic trends.
- Autozone (AZO): Autozone’s unceasing share buyback delivers tremendous shareholder value.
Over the past two years, many traders took up the saying that “stocks only go up.” It was an amazing time when seemingly any investment theme or idea would have immediate success. However, things have sharply reversed as of late. Now, companies with weak profitability or questionably business outlooks are plunging.
The list of seven all-weather long-term stocks to buy and hold spans many industries. There’s healthcare, technology, food and infrastructure among others. A key component of a successful long-term portfolio is diversification. Another factor is the company’s 10-year total return, which counts share price appreciation plus its dividends.
Past performance is no guarantee of future results. However, if you want to own a stock for at least a decade, looking through companies with a favorable track record is bound to lead to better results. With these factors in mind, here are seven excellent long-term stocks to buy.
|Grupo Aeroportuario del Pacifico
|Hingham Institution for Savings
Roper Technologies (ROP)
Roper Technologies (NYSE:ROP) is an interesting way to get diversified exposure to the software industry. The company consolidates software, buying up operators of things such as software for power plant management, insurance, supply chain management and pharmacies.
These are, by and large, not glamorous areas of the economy. However, all parts of the business world are being increasingly digitized, and Roper owns niche software solutions for many such areas.
The company’s core strength is its approach to M&A. Roper is constantly buying up more software companies, and it does so with a ruthless eye to maximizing free cash flow (FCF) generation and increasing shareholder value. Over the past 10 years, Roper has grown its FCF more than 14% annually, giving it plenty of funds with which to buy more software companies and keep the cycle going.
While software stocks have gotten pummeled in 2022, Roper is holding up. That’s because it has tremendous earnings and free cash flow generation. And with the industry downturn, Roper will have more software companies to buy up on the cheap. In any case, Roper’s formula has prospered, with shares delivering a 348% return over the past 10 years.
Grupo Aeroportuario del Pacifico (PAC)
Grupo Aeroportuario del Pacifico (NYSE:PAC) is a publicly traded Mexican airport operator. It has leases out to the year 2048 for key Mexican airports including Guadalajara, Tijuana and the tourist favorites of Puerto Vallarta and Cabos. Airports are a fantastic business as they are a government-sanctioned local monopoly with long-term contracts automatically built in to protect against inflationary cost increases.
In addition, airports are making more and more money from non-aeronautical services. Think restaurants, stores, parking and other such services at an airport. Pacifico has invested heavily in these ancillary services, which has helped it to grow FCF at 15% per year annualized over the past decade. Pacifico pays out nearly all of its FCF as dividends to shareholders, which has turned the company into an incredible dividend machine as well.
Remarkably, shares have delivered an almost 600% return over the past decade despite the Covid-19 pandemic. As things stand today, Pacifico’s airport traffic has already surpassed pre-Covid levels. Imagine how well Pacifico can perform through 2032 assuming — fingers crossed — that we don’t have any further global pandemics.
McCormick (NYSE:MKC) is the world leader in the spices and food flavorings industry. Investors commonly think of McCormick bottles of spices such as black pepper, oregano or cinnamon.
However, the business is much larger than just that. The company has expanded heavily into hot sauces such Cholula and Frank’s Red Hot. It also bought the French’s business, which makes mustard and other condiments. On top of that, McCormick has a large food service business. When a fast food chain wants to roll out a new sandwich — say a smoked chipotle mayo sandwich — McCormick will design the sauce and then sell it to the restaurant, giving it its signature flavor.
All these businesses combined have made McCormick an exceptionally robust and stable business. During the pandemic, for example, sales to restaurants dropped sharply, but that was more than made up for by increased sales at grocery stores. Long story short, people want more flavor in their foods; a trend that’s particularly prominent with millennials. McCormick will continue to grow strongly thanks to the steadily increasing demand for its products.
Texas Instruments (TXN)
Technology can be a tough industry to buy on a 10-year or longer time horizon. Products change quickly. Profit margins also tend to erode as competition can be brutal. And, for unprofitable tech companies, we’ve seen a historic reckoning over the past year as investors readjust their expectations.
So what’s a safe way to play the long-term growth of the tech industry? Texas Instruments (NASDAQ:TXN) is a great choice. It is the leader in analog semiconductors. These are products that sense real-world inputs such as weather information, and convert it into data. Texas Instruments has a catalog spanning many thousands of different products, most of which are sold for incredibly niche uses.
This largely insulates the firm from competition, as it makes money selling small amounts of thousands of products, rather than betting the farm on any one technology or consumer product. It’s also well-positioned to benefit from things such as the Internet of Things and autonomous driving, which require tons of data from the outside environment.
Texas Instruments is also strongly aligned with its shareholders. Management openly focuses on increasing its FCF as quickly as possible, and it uses those funds to raise its dividend every year without fail along with buying back stock. The results are obvious, given its 646% return over the past decade.
Hingham Institution For Savings (HIFS)
Hingham (NASDAQ:HIFS) is a small Massachusetts bank. What allowed it to deliver a nearly 500% return over the past decade? Its first tenet is an unflinching focus on costs. Hingham is the single most efficient multi-branch bank in the United States. This means it spends less on overhead in running its business, as a portion of revenues, than any of the other thousands of U.S. banks.
On the lending side of the picture, Hingham focuses on making low loan-to-value mortgages for wealthy people. This is an incredibly low-risk type of lending. It doesn’t get the fattest interest rates on these loans, as you’d expect, but since the bank is the lowest-cost operator around, it can earn tremendous profit margins with minimal credit risk.
Hingham has reinvested its profits into further lending growth, with it increasing its loan book at 13% per year over the past decade. That’s a formula for tremendous shareholder returns. Even after the run in HIFS stock over the past 24 months, shares still trade at just 10 times earnings.
Novo Nordisk (NVO)
Novo Nordisk (NYSE:NVO) is the global leader in pharmaceutical products for diabetes and obesity management. Think of various insulin products and other related drugs in that field.
The investment thesis for Novo Nordisk is a simple one. The world is rapidly aging, and obesity rates continue to rise in most countries. This means that diabetes will make up an increasingly large portion of overall health care spending in coming years. Novo Nordisk is arguably the single most concentrated investment that captures that theme.
Novo Nordisk grew earnings 12% per year over the past decade. With similar growth this decade, shareholders should be in for more tremendous returns going forward.
Auto parts retailer Autozone (NYSE:AZO) might not seem like a particularly exciting business. There are already tons of auto parts stores across America; growth prospects are limited. Indeed, Autozone has grown revenues at the pedestrian rate of 6% per year over the past decade.
Yet, Autozone grew earnings at a 17% per year rate over the same period. How did it pull that off? Autozone’s method for success is jaw-dropping levels of share buybacks. In 2000, Autozone had 150 million shares of stock outstanding. Now, it has just 21 million left. Over the past 22 years, it has retired more than 80% of all its outstanding stock. It’s truly incredible stuff.
The effect of these never-ending share buybacks is that Autozone’s earnings soar. Just since 2012, Autozone’s earnings-per-share have surged from $23.48 to $95.19. Why don’t more companies follow Autozone’s path? Most management teams stop their share buybacks during economic downturns, preserving cash for a rainy day. Autozone’s unceasing commitment to buying back stock and maximizing shareholder value, however, allow it to stand out from its peers and make it a great long-term stock to buy and hold.
On the date of publication, Ian Bezek held a long position in ROP, PAC, MKC, TXN, HIFS, NVO and AZO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.