There are always at least some great stocks to buy. However, finding stocks to buy and hold for a very long period of time can be a different story. The underlying companies should be industry leaders that are constantly in demand. These companies must also be able to adapt to changes in the market when necessary, whether that’s leaps in technology, changing consumer preferences, or new competition.
Not many companies meet this particular criteria. However, there are some names like this that you can buy and hold for a generation (or more), so you and your heirs build more and more wealth the longer you own them. Here’s a closer look at three of your best bets among these tickers.
1. Amazon
It cannot be denied that Amazon‘S (NASDAQ:AMZN) The peak growth times are behind us. The e-commerce market has largely matured and competitors are finally figuring out how to stay, well, competitive.
However, it’s not as if this company doesn’t have a strong second act in store. In fact, some compelling growth engines are already running at full speed.
One of these drivers is, of course, cloud computing.
Although Amazon Web Services (AWS) accounts for less than a fifth of the company’s revenue, this arm generates almost two-thirds of its operating profit. And it’s still growing strongly. In the first half of the year, AWS’s revenue increased by 18%, and much more is expected. Market research firm Mordor Intelligence expects the global cloud computing market to grow by more than 16% annually through 2029.
The other important growth driver that is exciting is Amazon’s advertising business.
You already know that Amazon was founded as an e-commerce company and made little to no profit in its early years, eventually gaining the dominance of the online shopping market that it enjoys today. eMarketer reports that Amazon’s share of the U.S. retail market is about 40%. Plus, the company is increasingly monetizing the massive web traffic Amazon.com attracts.
But Amazon does things differently. In addition to taking a small fee on its third-party sellers’ sales or a small profit from the sale of its own goods, Amazon now also collects money from third-party sellers who want to feature their products prominently on the site. In the second quarter alone, Amazon generated nearly $12.8 billion in value from this high-margin advertising business, up 20% from the previous year.
Neither of these business models is particularly complicated or impossible for a competitor to copy. However, both business models have unlimited potential for growth, and Amazon already dominates both. It is already the market leader in both and is in a position to capture at least its fair share of the future growth of both markets.
2. PepsiCo
Coca-Cola is the typical name for investors looking to add a dividend-paying consumer staples stock to their portfolio – and that’s understandable. Almost everyone knows its brands, and the company has not only paid dividends on time for decades, but has increased its annual dividend payments every year for the past 62 years. Nice.
However, Coca-Cola is not exactly the best source of income in the beverage sector. That honor goes to its competitor PepsiCo (NASDAQ:PEP)Although the company has only increased its annual dividend every year for the past 52 years, it has done so much faster than its arch-rival.
That’s not the only difference between PepsiCo stock and Coca-Cola stock. Unlike Coca-Cola’s more modest share buybacks, PepsiCo’s outstanding share count has fallen significantly faster than its competitor’s over the past 20 years.
A more aggressive share buyback program is obviously a major reason why PepsiCo’s dividend growth has outpaced that of Coca-Cola. Nevertheless, PepsiCo has demonstrated the ability and willingness to increase the net value of its shareholders to a degree that Coca-Cola simply has not been able to.
This will never be a high-growth name, to be clear. But slow and steady moves win the race. The key to creating generational wealth with PepsiCo is to buy the company and then reinvest the dividend payments into more shares. This slow accumulation of shares will continually accelerate your overall net growth as long as you hold this often-overlooked consumer staples name.
3. Berkshire-Hathaway
Finally, add Berkshire-Hathaway (NYSE: BRK.A) (NYSE: BRK.B) to your list of stocks that could create lasting, generational wealth.
It is not a stock in the traditional sense. Rather, Berkshire is a basket of stocks hand-picked by Warren Buffett and his associates. From that perspective, it is not unlike a mutual fund.
But even that comparison somehow doesn’t do it justice. In many ways, owning a stake in Berkshire Hathaway is a way of letting Buffett manage your money for you, based on his proven, value-oriented approach to stock picking. You have to be willing to make the same long-term commitment he does to a particular company. If you’re truly generational, that’s not a problem.
However, Warren Buffett’s skill in stock picking is not the main reason to invest in Berkshire for the long term.
Although it is rarely discussed, the majority of Berkshire Hathaway’s value does not come from the stocks it holds. According to recent calculations, only about a third of Berkshire’s market capitalization of over $900 billion reflects the total sum of all its stock investments.
The rest reflects the value of all the wholly-owned companies that are also part of the conglomerate. These include battery maker Duracell, underwear brand Fruit of the Loom, insurer Geico, flooring maker Shaw Industries and railroad company BNSF, to name a few. These companies generate cash and are arguably more successful in the long run because they are not publicly traded, thus avoiding the misguided influence of short-term shareholders.
That is what Berkshire Hathaway’s performance suggests. Although there is a lot of S&P500 from time to time, it reliably beats the overall market over the long term. That’s why it’s another one of those names that you just want to buy and then leave alone for years, trusting the underlying premise of the investment itself. Just remember that, unlike PepsiCo, there are no dividend payments to reinvest here. It’s all about capital appreciation.
Should you invest $1,000 in Berkshire Hathaway now?
Before you buy Berkshire Hathaway shares, consider the following:
The Motley Fool Stock Advisor The analyst team has just published what they believe to be The 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t among them. The 10 stocks that made the cut could deliver huge returns in the years to come.
Consider when NVIDIA created this list on April 15, 2005… if you had invested $1,000 at the time of our recommendation, You would have $752,835!*
Stock Advisor offers investors an easy-to-understand plan for success, including instructions on how to build a portfolio, regular updates from analysts, and two new stock recommendations per month. The Stock Advisor Service has more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of August 12, 2024
John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. James Brumley holds positions in Coca-Cola. The Motley Fool holds positions in Amazon and Berkshire Hathaway and recommends these companies. The Motley Fool has a disclosure policy.
3 Stocks That Could Create Lasting Generational Wealth was originally published by The Motley Fool
