When it comes to buying stocks that you want to hold for a duration perhaps beyond your own lifetime, the best bet is to not overthink things, and buy companies with simple businesses and established track records. In the spirit of the K.I.S.S. (Keep it simple, stupid) model of investing for the long term, we asked three of our investing contributors to each highlight a stock that doesn’t require much thought as an investment today, but is likely to be the type of buy-and-hold investment that investors want. Here’s why they picked Facebook (NASDAQ:FB), Waste Management (NYSE:WM), and Amazon (NASDAQ:AMZN).
Why Facebook’s growth could be just beginning
John Rosevear (Facebook): Tech-savvy folks may love to hate on Facebook, but meanwhile, the rest of the world keeps on using it. And as they do, Facebook’s revenue and profits keep on growing at eye-popping rates.
We all know Facebook, but it’s almost hard to get one’s head around the scale of the company’s reach. Facebook had nearly 2 billion users a month in the first quarter, a staggering number. Also staggering is the pace at which Facebook’s ability to monetize all of those eyeballs is growing: Revenue was up a whopping 54% last year following a 44% year-over-year jump in 2015.
That’s not just top-line growth. Facebook’s net income broke $3 billion in the first quarter alone, up 76% from a year ago. Its cash hoard stands at over $30 billion. And this is a company with no debt — that cash is immediately available for strategic acquisitions or shoot-for-the-moon future tech bets that could drive further steep-trajectory growth down the road. Alternatively, some, or all, of that cash could be returned to shareholders in time. Either way, investors win.
One of the things we Fools look for is a management team with “skin in the game.” Founder and CEO Mark Zuckerberg has plenty, and he’s consistently among the highest-rated CEOS on Glassdoor. Pairing his vision with COO Sheryl Sandberg’s execution savvy has turned out to be a winning partnership that should reward Facebook’s shareholders for a long time to come.
Turning refuse into cash on a regular basis
Tyler Crowe (Waste Management): When I’m looking for a business I want to own forever, I’m looking at companies that aren’t going to be disrupted. One thing that people are good at is consuming things, and consumption inevitably leads to the production of waste that needs to be properly disposed of. Also, it’s a service that people don’t put much thought into. I’m betting that you haven’t spent much time deciding which company will come to collect your trash and recycling.
These qualities make Waste Management’s collection and disposal of refuse an incredibly valuable service that has a better chance of lasting for decades than just about any other product or service out there. What’s more, Waste Management’s business model is one that investors can get behind.
Waste collection typically is a service that larger customers, such as municipalities, sign up for using long-term service contracts. These contracts ensure rather steady revenue streams for the business, which Waste Management has turned into spectacular free cash flow over time. Also, because of the inherent geographic advantages of owning landfills and collection fleets, there’s little customer churn from year to year.
Waste Management is far from a perfect stock. The business of recycling consistently battles commodity prices, and separating recycling properly has always been a costly endeavor. That said, the company has still managed to turn in high rates of return for shareholders, while raising dividends and reducing share count through buybacks.
Perhaps there will come a time when we completely revolutionize the way we dispose of waste, but we haven’t found that solution yet. Until we do, Waste Management will be a stock to hold on to over the long haul.
Who knows what Amazon will do next?
Brian Stoffel (Amazon): In an effort to make sure that my money is firmly where my mouth is, I only thought it appropriate to write about the company that I’ve bought and held for most of my investing life: Amazon.
We could focus on the company’s absolute dominance in e-commerce, or the fact that it seems to be disrupting industry after industry: first books, then retailers, followed by shipping companies, cloud-based hosting services, and now, grocers. But there’s more. A convincing case could also be made that this is a no-brainer based on the fact that — despite its size — Amazon has increased sales by 53% between 2014 and 2016.
But central to my thesis is actually a much softer variable: Amazon’s healthy long-term approach to risk and failure. The company is willing to spend on endless initiatives that, if successful, could meaningfully move the needle — but if they fail, won’t bankrupt the business. Former Fool Morgan Housel recently put it best when he said:
“Amazon and Google, I’m convinced, are successful because they’re better and more willing to fail than any other company. Accepting lots of small failures is the only way they’re able to eventually find a few things that take off.”
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Brian Stoffel owns shares of Alphabet (A and C shares), Amazon, and Facebook. John Rosevear owns shares of Amazon and Facebook. Tyler Crowe owns shares of Waste Management. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Amazon, and Facebook. The Motley Fool owns shares of Waste Management. The Motley Fool has a disclosure policy.