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There aren’t many stocks to hold forever, but these three are.
Are there stocks for the long run? Stocks that, as Warren Buffett says, you could truly buy and hold for his ideal period – meaning forever? I believe that there are. These are companies that have solidly established themselves not only in terms of humans interfacing with them on a daily basis, but have business models that are designed to survive even the zombie apocalypse.
The businesses touch many different aspects of our lives. They have done so for many years and likely will continue to do so. As a result, they are always generating a lot of free cash flow and/or are growing their businesses each and every year. They are also well-known names that attract other investors for the same reasons.
So, yes, I would characterize these three stocks as meeting Buffett’s criteria of the ideal holding period, and never having to sell them.
No. 1 Stock for the Long Run: Berkshire Hathaway (NYSE:BRK)
I don’t think I’m cheating by listing Berkshire Hathaway (NYSE:BRK) as one such company. There are many aspects of Berkshire that elevate it to the Never Sell category, including Warren Buffett’s stewardship.
The company also has a decades-long history of consistency in operations, cash flow and simple success. However, I would actually point to the fact that its primary business is insurance, and that it has done such a great job of underwriting that I consider it to be the premier insurer in the nation.
Berkshire also has the broadest possible exposure to consumers with a perfect midlevel brand: the auto insurer Geico. That midlevel appeal is fundamental to the companies Berkshire has purchased over the years. So many of them speak to, and are used by, a massive cross-section of Middle America.
Berkshire doesn’t buy businesses that play in niches. It buys businesses with broad appeal. Dairy Queen, Heinz, Jordan’s Furniture, See’s Candies, Shaw Industries, Helzberg Diamonds, Fruit of the Loom – this is America.
Berkshire also is so massive, and has so much capital at its disposal, that it is able to make outrageously profitable investments when times are tough — such as its purchase in 2008 of preferred stock in Goldman Sachs. Of course, I’d suggest you purchase the B-class shares of Berkshire, unless you can pony up $200,000 for the A-class shares.
No. 2 Stock for the Long Run: Leucadia National Corporation (NYSE:LUK)
Leucadia National Corporation (NYSE:LUK) has never enjoyed the same success as Berkshire, despite having a similar business model.
By holding stakes in public companies, Leucadia is able to buy or sell shares as it sees fit, giving it great flexibility in how it deploys capital.
It merged with Jeffries Group in 2012. It holds a 50% stake in a commercial mortgage venture with Berkshire; 79% of National Beef Packing; Leucaida Energy, Linkem, Conwed Plastics, Idaho Timber, and Snowbird Ski Resort.
It also is the largest backer of Bill Ackman’s hedge fund. Its revenues and overall company value will fluctuate with the market and performance of these stocks and private holdings.
Furthermore, Leucadia doesn’t play the press release game or have conference calls. One just needs to read carefully over its financials and interpret the data on one’s own.
You have to be careful, and this is where I think the market misunderstands the company, in that losses are under the equity method of accounting, not the cash method. So these are not actual realized losses.
The things to look at with Leucadia are overall cash position, cash flow over a long-term basis, the performance of operating companies and the stock performance of stakes held in public companies. I believe the market will reward it more than it has.
No. 3 Stock for the Long Run: National Grid (NYSE:NGG)
National Grid (NYSE:NGG) is one of those classic, overlooked companies — despite the fact it has a $54 billion market cap. The company owns and operates regulated electricity and gas infrastructure in the United Kingdom and the United States.
The key word is “regulated,” which means its rates are effectively locked in for the long term. And those rates generate net margins of 16% and returns on equity of 22.5%.
These are great numbers — it’s not easy to find an energy company that nets 16 cents on every dollar of revenue. Furthermore, it pays a fantastic dividend of 6.2% — a dividend that has been increasing every year since 1993.
It has billions of dollars of cash in the bank, and energy is going to be an ongoing necessity for a very long time.
There are many other companies to never sell, of course, but these three are a bit more diverse than you might expect. The trick is not to always lock yourself into familiar names.
Lawrence Meyers owns shares of BRK’s B series.
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