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Many things can change in 20 years. Some dominant companies will disappear in the ether and companies that do not exist yet will take their place. There are very few companies offering sustainable competitive advantages and ensuring their continued success over the next two decades. According to three of our contributors Motley Fool, Waste Management (NYSE: WM), Berkshire Hathaway (NYSE: BRK-B), and Visa (NYSE: V) are members of this exclusive group. Here's why these stocks belong to your long-term portfolio.
Trust in the company, trust in the management
Tyler Crowe (waste management): Many things can happen in 20 years, but one thing is certain: we will always throw waste. As long as we create waste, waste management will always be flourishing. It is a highly regulated industry that makes it almost impossible for new businesses to enter the fray, and waste collection and disposal is a low-margin activity that benefits from economies of scale. As the country's largest waste carrier, it is able to prevent anyone from encroaching on its territory for many years.
Image Source: Waste Management.
In addition to having a company that looks incredibly sustainable, Waste Management also has a management team in which you can trust to make good decisions and generate returns for investors. Although the sector is experiencing relatively slow growth, management has managed to reduce earnings by focusing on costs and increasing earnings per share with a large dose of share buybacks. As a result, this seemingly boring business regularly generates strong returns on equity.
WM Equity Return Data (MTT) by YCharts
The combination of an extremely sustainable business in an unpopular but necessary sector and a management team renowned for being good stewards of shareholder capital is what I want in my multi-year investments. That's why I own Waste Management shares and I'm quite comfortable with owning them for the next 20 years or so.
The gold standard of stocks to buy and hold
Tim Green (Berkshire Hathaway): Warren Buffett has built Berkshire Hathaway into a $ 500 billion giant over the last fifty years. The conglomerate includes a diversified mix of wholly-owned activities, including insurance activities, a large railway company and dozens of other companies, as well as a broad portfolio of shares.
Even though Berkshire is valued at more than half a trillion dollars, Buffett thinks it's cheap. The company repurchased about $ 1 billion of its own shares in August. Other redemptions could take place as Berkshire 's cash flow develops and reasonably priced acquisition targets remain inadequate. Buffett's dislike for companies that pay too much is one of the reasons Berkshire has prospered over the past 50 years. "To be fearful when others are greedy, and greedy when others are afraid" is a Buffett mantra that has served society well.
Buffett will not be in charge forever – the iconic investor is now 88 years old. But as long as his successors stick to the conservative, value-based approach for which Buffett is known, Berkshire can continue to prosper for decades.
This brand title could have a higher load in the coming decades
Sean Williams (Visa): There are not many actions that have appealed for decades, but the Visa Payment Processing Facilitator is one of those rarities.
In the United States, Visa has an almost insurmountable market share in payment processing. Between 2006 and 2016, Visa's US network market share increased from 42.5% to 50.6%. Meanwhile, the next closest competitor, American Express (NYSE: AXP)was almost 28 percentage points behind 2016. With a significant lead in the world's largest market, Visa is a partner of choice for merchants and is expected to deliver long-term growth.
Visa also offers a lot of potential beyond the limits of the United States. In June 2016, she acquired Visa Europe, which significantly increased the number of merchants and the global circulation of cards. Equally important is giving Visa access to a handful of fast-growing Eastern European countries.
In terms of market potential, around 85% of global transactions are still in cash. This should allow Visa to significantly expand its presence in Africa, the Middle East and Southeast Asia over the next two decades. These emerging markets offer significantly higher growth rates and allow Visa to almost resist the recession.
The icing on the cake, Visa recorded a steady increase in its dividend proportional to the growth of its activity. Although it pays only 0.7%, I would not be too worried. Visa is reinvesting in the infrastructure that will fuel its foreign and domestic growth, but it still has a lot of money to transfer a slightly improved payment every year since 2009.
Long story short: Establish Visa and forget about it.
Sean Williams has no position in any of the actions mentioned. Timothy Green owns shares of Berkshire Hathaway (B shares). Tyler Crowe holds shares in Berkshire Hathaway (B shares), Visa and Waste Management. Motley Fool owns Visa shares. The Motley Fool recommends Berkshire Hathaway (B shares). Motley Fool has a disclosure policy.
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