My Top 10 Buy & Hold Forever Stocks

Back in the days of the wild west, people would secure their values by putting them into a coffee can.

That coffee can would go up on a shelf or under a bed… And stay there.

While this isn’t a practical idea today, the idea of buying and holding investments for the long-run is as practical (and effective) today as it was 200 years ago.

The 10 stocks examined in this article are all companies I’d be happy to add to my ‘coffee can portfolio’; to buy and hold forever.

With that said, many of these 10 are not buys today. But they should still be on investor’s radars. If they are not a buy today, this article shows when to buy.

Buy & Hold Forever Stock #1: Johnson & Johnson

Johnson & Johnson (JNJ ) is perhaps the single safest stock available on the market. It is one of only 2 companies with an AAA rating from Standard & Poor’s (Microsoft is the other).

Johnson & Johnson was founded in 1886. Today, the company has a market cap of $352 billion, making it the largest publicly traded healthcare corporation in the world.

The company has also paid rising dividends every year since 1972, for a streak of 46 consecutive years of dividend increases including 2018. More impressively, the company has a 30+ year streak of rising adjusted earnings-per-share every year. We have seen no other company come close to matching this streak of rising earnings every year. The stability of Johnson & Johnson is incredible.

The company’s success and stability come from its diversified business. Johnson & Johnson operates in 3 large segments. The company’s 3 segments are:

  • Pharmaceuticals
  • Medical Devices
  • Consumer

The image below shows the company’s adjusted pre-tax earnings by segment in its most recent quarter.

(Click on image to enlarge)

Source:  J&J 2nd Quarter 2018 Presentation, slide 29

Johnson & Johnson’s consumer segment controls some of the most iconic names in over-the-counter healthcare. Among the company’s brands are: Listerine, Band-Aid, Tylenol, Zyrtec, Benadryl, Aveeno, and Motrin.

The company’s medical devices segment covers a wide range of equipment used for healthcare.  The long-term growth driver in this segment is advancing technology, which drives new (and more expensive) healthcare equipment. Orthopedics are the largest contributor to this segment.

The Pharmaceutical segment’s best-performing drugs based on revenue (in millions) over the first 6 months of fiscal 2018 are below:

When to Buy Johnson & Johnson

Johnson & Johnson is the epitome of a high-quality business, but it isn’t a buy at any price…

Over the last decade, Johnson & Johnson shares have traded at an average price-to-earnings ratio of 15.8. The stock currently trades for a price-to-earnings ratio of 16.1 based on its expected 2018 adjusted earnings-per-share of $8.12.

Johnson & Johnson is near buy levels for long-term investors. We’d prefer waiting to buy when the stock is trading at or below its historical price-to-earnings ratio, but it is a potential buy at current prices.

Buy & Hold Forever Stock #2: Abbott Laboratories

Abbott (ABT) is a Dividend Aristocrat thanks to its 46 years of consecutive dividend increases. While not as large as Johnson & Johnson, Abbott is still one of the larger healthcare players based on its $112 billion market cap. The company was founded in 1888 and has grown to generate sales of nearly $30 billion a year.

Abbott operates in 4 segments:

  • Nutrition
  • Diagnostics
  • Established Pharmaceuticals
  • Medical Devices

The image below gives a good general overview of the company’s strengths and operating segments.

(Click on image to enlarge)

Source:  Abbott Labs Infographic

It is important to note that all of Abbott’s established pharmaceuticals segment revenue comes from emerging markets, not developed markets. This gives the segment strong growth prospects.

The medical devices segment is the company’s largest, responsible for 37% of sales through the first half of fiscal 2018. The nutrition segment and diagnostics segment generated 24% and 25% of sales respectively over the same time period. The established pharmaceuticals segment is the company’s smallest based on revenue, generating 14% of total company revenue.

Abbott has managed to pay rising dividends for so long thanks to its diversified business model and strong competitive advantage.

The company’s size allows it to spend aggressively on research and development (and acquisitions), which fuels further growth. Research and development spending over the last 4 fiscal years is shown below:

  • 2014 R&D expense of $1.3 billion
  • 2015 R&D expense of $1.4 billion
  • 2016 R&D expense of $1.4 billion
  • 2017 R&D expense of $2.2 billion

When to Buy Abbott Laboratories

There’s no question Abbott Labs is a high-quality business likely to generate solid growth and rising dividend payments over the long run.

The company’s historical average price-to-earnings multiple is not as instructive as it was for Johnson & Johnson because Abbott Labs spun-off a large portion of its business in AbbVie (ABBV) in 2013. Based on Abbott Lab's high-quality business model, we believe a fair long-term price-to-earnings ratio for the company is around 19.

Abbott Labs is currently trading for a price-to-earnings ratio of 22.4 based on its expected 2018 earnings-per-share of $2.88.As a result, we believe the company is trading above fair value now. Investors should buy into Abbott Labs and hold for the long run when the stock is trading below a price-to-earnings ratio of 19.

Buy & Hold Forever Stock #3:3M

3M (MMM) is perhaps the single safest and strongest manufacturer on the market today. With a market cap of $121 billion, only Boeing (BA) is larger in the industrial sector.

3M has grown steadily over time since it was founded back in 1902. Additionally, the company has paid increasing dividends every year for 60 consecutive years and has paid uninterrupted dividends for more than 100 years.

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Disclaimer: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of Sure ...

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