This column focuses on stocks to buy for long-term wealth creation with evergreen ideas. A key factor that separates evergreen businesses from others is necessity versus luxury. The latter will have volatile demand depending on the economic scenario. The manufacturers of necessity have a relatively stable cash flow profile. Of course, this is not the only screener. In a world dominated by technology, there can be necessities that are not so obvious like food and water.
Investing in growth stocks is important to ensure that portfolio returns swell. However, I would invest 30% to 50% of the portfolio in evergreen stocks for long-term wealth generation. This can be in the form of dividends, share repurchases, and capital gains.
Let’s discuss seven stocks to buy for long-term wealth creation.
Stocks to Buy for Long-Term Wealth: Newmont (NEM)
In a global scenario where inflation, geopolitical tensions, and swelling government debt are concerns, gold is likely to trend higher. The precious metal recently traded above $2,000 an ounce and I’m bullish on upside. A good proxy for investing in gold is exposure to gold mining stocks. Newmont Corporation (NYSE:NEM) stock is among the best mining stocks that trades at attractive valuations and offers a dividend yield of 4.27%.
The first reason to like Newmont is an investment grade balance sheet. As of Q2 2023, Newmont reported a liquidity buffer of $6.2 billion. Further, with net-debt-to-adjusted-EBITDA of 0.7, the Company has high financial flexibility for organic and acquisition driven growth.
The second reason to like the Company is high-quality assets. Even if we leave aside the recent acquisition of Newcrest Mining (OTCMKTS:NCMGF), the Company has quality tier one assets. There is clear production visibility into the 2040s and this implies sustained cash flow upside.
Costco Wholesale (COST)
The largest growth driver for the U.S. economy is consumption spending. Within this, retail expenditure is a critical component. I would therefore remain invested in quality retail stocks. Costco Wholesale (NASDAQ:COST) is possibly the best bet.
Amidst macroeconomic challenges, COST stock has trended higher by 22% for year-to-date. Further, the stock provides a dividend yield of 0.74% and I see visibility for sustained dividend growth.
An important point to note is that Costco has 861 warehouses globally. However, it’s largely concentrated in U.S. and Canada. Currently, the Company is generating $4.6 billion in membership fee with a 92.7% renewal rate in U.S. and Canada. The number of warehouses in China currently stands at five. I expect significant expansion in China in the coming years, which will boost recurring membership fee.
Leaving aside this factor, Costco continues to report healthy comparable store sales growth. For October, comparable sales increased by 3% on a year-on-year basis. With strong omni-channel sales presence, Costco is well positioned to benefit.
Chevron (CVX)
Oil and gas stocks are cyclical in nature and investors would question the reason for including Chevron (NYSE:CVX) here. I would point out that Chevron managed to generate positive cash flows even during the pandemic year when oil plunged to historic lows.
Chevron has high quality assets that have a low break-even. Last year, Brent oil averaged $100.93 per barrel and Chevron delivered operating cash flow of $47.5 billion. With an investment grade balance sheet and robust cash flows, Chevron is positioned to create value.
Recently, Chevron announced the acquisition of Hess Corporation (NYSE:HES) for a consideration of $53 billion. Post this acquisition, the Company will be investing $19 to $22 billion annually. This will ensure healthy reserve replacement and steady production growth.
It’s also worth noting that Chevron has already announced an 8% increase in quarterly dividend per share to $1.63. Given the high geopolitical tensions, I expect oil to trade above $80 per barrel. Dividend growth visibility therefore remains robust for the coming years.
Lockheed Martin (LMT)
Lockheed Martin (NYSE:LMT) stock is another name among stocks to buy for long-term wealth. When talking about the defense sector, I must remind investors that global defense spending increased even during the pandemic year. With rise in geopolitical tensions, I expect defense spending growth to accelerate further. Lockheed is well positioned to benefit and create value.
Talking about fundamentals, Lockheed reported an order backlog of $156 billion as of Q3 2023. The order intake has been robust and as the backlog increases, revenue growth can potentially accelerate. At the same time, free cash flows will swell and translate into higher dividends. For the current year, Lockheed has guided for FCF of $6.2 billion.
As a part of the growth strategy, Lockheed is looking at expanding international collaborations. Orders from NATO member states will ensure growth. Further, the Company is investing in next-generation technology that includes hypersonic aircraft, among others. These factors will ensure that Lockheed remains a value creator.
AstraZeneca (AZN)
AstraZeneca (NASDAQ:AZN) stock has been largely sideways in the last 12 months. This does not come as a surprise with biopharmaceutical companies being dumped by investors in a post-pandemic world.
However, this sell-off presents a golden opportunity to accumulate as top biopharma companies represent more than just growth from the covid-19 vaccine. There are multiple medical conditions of global concern with a big addressable market.
AZN stock trades at an attractive forward price-earnings ratio of 17.4 and offers a dividend yield of 1.47%. Coming to the business, AstraZeneca currently has 172 projects in its research pipeline. Further, 14 molecular entities are in the late-stage pipeline. This will ensure steady revenue growth in the coming years.
Another point to note is that the company believes that there are ten potential blockbuster opportunities from 30 Phase III trials planned in 2023. Clearly, the pipeline is attractive and makes a strong case for investing in AZN stock.
I also like the fact that the company is well diversified globally. For the first half of 2023, the Company reported 40% of revenue from outside the U.S. and Europe. Strong presence in emerging economies is likely to be a major growth catalyst.
Apple (AAPL)
For years, Apple (NASDAQ:AAPL) stock has been a value creator. The reasons being the brand positioning and innovation. The same factors will continue to ensure that AAPL stock creates wealth in the long-term. In my view, AAPL stock is among the best dividend growth stocks to consider. My point is underscored by the Company’s cash flow potential.
However, that’s not the only reason to be bullish on Apple. In the last quarter, Apple reported record revenue from the services segment. Further, the wearables business has ample headroom for growth globally. Apple will also be investing $1 billion annually towards artificial intelligence devices. There continues to be speculation about Apple’s electric car that seems to be scheduled for launch in 2026.
Therefore, there is a strong case for diversification driven growth. I must add that Apple is also focusing on markets like India and Southeast Asia. Emerging markets (excluding China) have the potential to accelerate revenue growth.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) was a hated stock among lot of analysts since listing. However, the Company navigated an extended period of cash burn and created immense value. With positive tailwinds for electric vehicles likely to last beyond the decade, I remain bullish on TSLA stock.
It’s worth noting that Tesla has set an ambitious target of producing 20 million electric vehicles annually by 2030. To achieve this target, the Company is likely to invest in few more factories in the coming years. India and Indonesia are some potential locations in emerging markets.
I also like the fact that Tesla currently has an attractive product line-up. Cybertruck, Roadster, and Tesla Semi will ensure that deliveries growth is healthy. Further, the launch of Tesla Semi would mark the Company’s entry into commercial EVs.
From a financial perspective, Tesla reported operating cash flow of $8.9 billion for the first nine months of 2023. Further, the Company has $26 billion in cash and equivalents. This provides high financial flexibility to make aggressive investments for growth.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
