When seeking out stocks to buy and hold for the long term, investors need to be extra picky about what companies they choose. Not all businesses have what it takes to consistently and reliably perform in such a way the investor makes money while he or she sleeps.
Why would you want to buy and hold a stock in the first place?
When we just start learning about the stock market and what it takes to participate, we conjure Hollywood images of buying and selling in front of an ever-changing screen of brightly colored lines against the cold, black background of capitalism. The “buy-and-hold” strategy doesn’t look at all like that.
The idea behind holding a solid stock is to build wealth over time due to the stellar performance of a successful company. Typically, an investor purchases an equity security with the understanding the asset will be “held” over many years. This agreement of duration period for holding the stock is established upon purchase and can vary widely. Most often, these stocks are held for at least five years or more.
What are the risks and benefits of holding stock?
There’s always a catch to what looks like a sure thing and holding stocks, even from the most impressive companies on the planet, comes with risks. Long positions are always susceptible to the rollercoaster of the market and investors will have to have the stomach and resources to ride out the various tides. Should the stock experience a serious decline, the investor will lose money, just like with any stock. Often, investors are driven to take this strategy due to the advice of a financial institution.
In spite of this, holding a well-performing stock means investors benefit from quarterly dividends and price appreciation. Of course, even if the stock stays flat, dividends are still earning profit for the investor. It’s not a bad position to take…if you know who to choose.
#1 Stock to hold for an exceptionally long position: Tellurian (NASDAQ:TELL)
This energy stock is an easy one to overlook; however, the innovative thinker just might see the company’s business plans for the future are bright.
Tellurian seeks to get into the liquefied natural gas (LNG) industry. The very first companies to look into LNG experienced periods of time during which they needed to raise a significant amount of money, in the billions, just to build enormously pricey production plants and export facilities. One example, Cheniere Energy, accumulated about $25 billion in consolidated debt in this effort.
Tellurian has a big advantage over the “other guys” – they maintain this level of construction-related needs without the crazy amount of debt. The company is creating an LNG project known as Driftwood valued at about $30 billion. The facility should have the capacity to ship 4 billion cubic feet per day of product. This translates to power for at least 20 million homes in the United States.
Rather than attempting to raise mind-boggling amounts of money for the project or accumulating massive debt, the company plans to sell equity in their LNG Driftwood project to customers and sell LNG at cost. This strategy will help smooth over the bumps in the road of a volatile market and projects will scale more cheaply than everyone else who has tried to get into the LNG game. A business model like this allows for a more customized approach for their customers which will catch on quickly. If all works out according to plan, a small investment in this company today just might mean big dollars tomorrow.
#2 Stock to hold for a more predictable approach: Procter & Gamble (NYSE:PG)
If you’ve ever read over the 30 Dow Jones Industrial Average members of 1968, only two companies remain on this list 50 years following. Of those, Procter & Gamble has gone the distance and is prepared to continue this track for years to come.
Anyone who bought this stock 30 years ago enjoys the astronomical return of 1,710%. In money terms, a $10,000 purchase 30 years ago is worth over $180,000 today. Reinvesting the big dividends this company pays out makes for an even greater ROI. The percentage rises to 3,670% which makes the $10K investment of yesteryear now worth $370K.
Annual revenue for the consumer goods company rose 12 times over while the earnings grew 7 times greater. This should not insinuate it’s always been smooth sailing for Procter & Gamble as it has certainly experienced its share of sharp drops; however, it seems to get back on track better than ever every time. People will always want what they’re selling from toothpaste to batteries, so, they’ll have no problem staying relevant. This just might be the kind of stock you can leave behind for the generations to follow you.
#3 Stock to hold to get you through the morning for years to come: Starbucks (NASDAQ:SBUX)
While it’s not exactly written in stone, it’s highly likely humans are going to keep drinking coffee in the coming years. Starbucks is the one stock to rule them all and worth holding for a minimum of five years.
Starbucks is absolutely everywhere. Their massive scale brings the company buying power to maintain margins for the long haul. The brand took the world over and it maintains impressive pricing power. Its focus on conscious capitalism contributes to the powerful corporate culture.
Then there’s the obvious benefit to backing the coffee king – the commodity sold is addictive and seen as a largely affordable luxury. With a business model including everyone’s favorite things: food, to-go packaged goods, a rewards system through their smartly designed app, expansion to locations all over the world, etc., Starbucks is here to stay and will only continue to grow.
Just to seal the deal, Starbucks historically makes use of its financial prowess to offer incentive to shareholders. Considering their shares are currently on sale, investors might want to consider this stock before the sale ends.
As with any other stock to buy or watch, thoroughly research the company to verify its performance history, business planning, and upper management.
With these three stocks to hold in mind, remember there are other positions to take when building wealth for the future. To learn more about padding retirement or other financial goals, read 5 Stocks to Buy and Hold for the Long Run and How to Avoid Ruining Your Retirement with Bad Investments.