The best way to build wealth is to buy many stocks and hold them for the long haul. That way, you can ride out the market’s short-term volatility and benefit from the value created by great companies.
Let’s look at three companies that I think are worth owning for a decade or more.
The first stock I want to own for the long haul is Microsoft (MSFT -1.27%). There are plenty of reasons to like this tech behemoth: its surging cloud business, its outstanding gaming division, and of course its ubiquitous personal computing software. Yet, as impressive as those business divisions are, I’m even more impressed by the company’s leadership.
Consider this: If you had bought $10,000 worth of Microsoft stock back when Satya Nadella was named CEO on Feb. 4, 2014, those shares would now be worth $66,310. And that’s after shares have given up more than 28% year to date. At its peak, your hypothetical $10,000 investment would have grown to over $94,000.
Another way to measure a company’s management is by looking at return on equity (ROE). This financial metric shows how profitable a company is, compared to its shareholders’ equity, with a higher percentage being preferable.
Microsoft’s ROE of 47% is outstanding (per CSI Market the tech sector average was 28% in 2021) and further demonstrates how management continues to deliver results for shareholders. That’s something buy-and-hold investors should look for, and it tells me Microsoft is worth owning for the long haul.
When thinking long term, you must grasp the big picture. What are the trends in their opening stages now that will continue for years — even decades — to come? One such trend is the growth of cybersecurity.
We are still in the opening stages of the digital revolution, yet it’s clear that nearly everything is becoming digitized. And as it does, it becomes vulnerable. Whether it’s sensitive personal data or crucial economic infrastructure, hackers are interested in exploiting systems for financial gain. In fact, according to a study from the University of Maryland, hackers attempt a cyberattack every 39 seconds.
CrowdStrike Holdings (CRWD -0.55%), a cybersecurity specialist, has set out to thwart would-be cybercriminals. The company’s cloud-based modules scan its customers’ networks, monitoring activity, collecting data, and preventing breaches.
Business is booming. CrowdStrike now has over 18,000 customers, an increase of 57% year over year. Revenue is growing, too. Wall Street expects the company to increase its top-line figure by over 30% in each of the next two years.
That sort of growth isn’t easy to find. And it’s the main reason I want to own CrowdStrike for the long haul.
3. Occidental Petroleum
My third and final stock worth owning for the long haul is Occidental Petroleum (OXY -5.09%). While the market has struggled to find its footing this year, the energy sector has bucked the trend. And within the energy sector, Occidental has stood out with a remarkable 103% year-to-date return.
What’s behind the surge? Three factors:
- The high price of oil and gas.
- Occidental’s improving financials.
- Berkshire Hathaway‘s buying spree.
We’re all familiar with the first factor. Gasoline prices have come down from their peak, but they remain almost $1 above the 10-year average. Natural gas prices are even higher, with today’s price 150% more than the 10-year average.
Given these high prices, it’s no surprise that Occidental has seen its financial situation improve. The company’s debt load ballooned after its $55 billion purchase of Anadarko Petroleum back in 2019, followed by the pandemic-related collapse of oil and gas prices in 2020. However, with Occidental having now generated over $11.6 billion in operating income over the last 12 months, management has paid off more than $13.8 billion of long-term debt over the same period.
This tidying-up of the balance sheet leads to the third factor driving Occidental’s recent stock surge: Berkshire Hathaway. Warren Buffett’s company now owns over 188 million shares of the company, valued at around $12 billion and representing more than 20% of the company.
Occidental is now Berkshire Hathaway’s sixth largest holding. There are even rumors that Buffett might look to fully acquire Occidental, which would help the conglomerate boost its own cash flow. Buffett has long maintained a strong relationship with Occidental CEO Vicki Hollub, dating back to Buffett’s initial investment on the eve of the 2019 Anadarko merger.
With plenty of oil reserves to draw on and a roughly $40-a-barrel cost of production, I want to own Occidental for the long haul. And it looks like Warren Buffett does, too.
Jake Lerch has positions in CrowdStrike Holdings, Inc. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares), CrowdStrike Holdings, Inc., and Microsoft. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.