Stocks for the Long Haul

Here’s a really fun game that every stock investor should play: Occasionally ask yourself, “What shares would I buy if I had an unlimited amount of money to invest in the market?”

I decided to play this game from a value investing perspective. Here’s what I came up with; it was a lot of fun, but it also offers some food for thought. I broke the picks down by sector to make it easier. Here is the portfolio I would buy if I had a lot of money to invest right now. Note: I’ll just name companies; you can chose your own percentages.

The companies I have listed below are those I feel are poised for a lot of growth in the years ahead. I also feel these are among the most stable stocks around.

I’ve concentrated on American stocks because I feel there’s a lot of room for growth in the North American economy, although I’ve tried to pick companies that operate globally for diversification’s sake. These are companies I feel will do well whether or not the U.S. economy does well.

Technology

• Google Inc. (NASDAQ: GOOG, GOOGL) – This Internet giant could well become the Exxon of the 21^st century, a company that is the backbone of the new econmy. Google has a lot of float, and it performs consistently. Google reported a revenue growth rate of 11.92% on March 31, 2015. After 10 years on the NASDAQ, it went public in 2005. Lots of technology companies have had fast-growing revenues, but Google’s kept it up for 16 years. Google is also one of the few high-priced technology stocks actually worth its inflated share price. Even though it does not pay a dividend, just like Berkshire Hathaway, it more than makes up for that in growth. Another reason I like Google is that—like Berkshire Hathaway—it does not rest on its laurels; Google is always out searching for new ideas and new streams of revenue. Google’s actually become something of a diversified investment; it makes money in both advertising and technology, and it’s moving into new fields like insurance, transportation and finance. As a conservative investor, I like to hedge my bets with diversification.

 

Finance

• Goldman Sachs Group (NYSE: GS) – This Wall Street powerhouse reminds me a lot of Google. It dominates its industry and delivers a steady return year after year. Goldman Sachs reported a revenue growth rate of 13.82% on March 31, 2015. Goldman Sachs also delivered a very nice dividend yield of 1.16% on that date and a return on equity of 12.66%, making it that rare animal—a dividend stock that is also a growth stock. One reason why I like Goldman Sachs is that it reminds me of Google. Google is actually a giant team of engineers constantly designing new solutions and experimenting with new processes. Goldman Sachs is a team of financial engineers doing much the same thing. A good way to think of Google is as a technology company that operates like an investment bank. Goldman Sachs is an investment bank that operates like a technology company.

• PayPal (NASDAQ: PYPL) – If I could invest a few million or a few hundred thousand dollars in one IPO this year, it would be PayPal. It is one of the best-run companies I’ve seen in a long time and one company that could grow into something like Goldman Sachs or Google. Indeed, I think PayPal could become the Google of finance someday. Not only is PayPal at the cutting edge of financial solutions but it also has a great track record of making the right acquisition; much like Berkshire Hathaway, it buys the companies that can help it grow. PayPal is also growing fast; its total payment volume in Fourth Quarter 2014 was up 24% from the year before. PayPal also generates a lot of float; its total payment volume for 2014 was $228 billion. Personally, I think PayPal could grow into a financial services giant rivaling Visa (NYSE: V), American Express (NYSE: AXP) or even Goldman Sachs.

 

Diversified

• Berkshire Hathaway B (BRK.B) – I view Warren Buffett’s company more as a diversified stock portfolio than a company. It operates in a wide variety of businesses, including insurance, which gives it a lot of float. Even though it famously does pay a dividend, it’s a growth company. Berkshire reported a year to year revenue growth rate of 7.02% on March 31, 2015. It also reported a free cash flow of $2.516 billion and a TTM revenue of $197.86 billion on the same date. The only real risk here is Uncle Warren, who is not getting any younger. His death could really hurt this company badly in the short term, which could be an opportunity for investors.

 

• Kroger (NYSE: KR) – No company has done a better job of negotiating the dangerous terrain of American retail better than Kroger in the last decade or so. The giant grocer reported revenues of $108.56 billion and a return on equity of 35.45% on April 30, 2015. Kroger is a diversified company that operates a wide variety of grocery stores and operates in a number of areas of retail, including pharmacies and jewelry. Kroger’s growth has slowed in recent months, but it could pick up again because the U.S. grocery business is ripe for consolidation.

Healthcare/Retail

 

• Walgreen Boots Alliance (NASDAQ: WBA) – I like this stock because of the diversification. It operates in both retail and healthcare and operates both in Europe and the USA. This drugstore operator also delivers some impressive results for investors, including a forward dividend yield of 1.55% and a return on equity of 15.74% on May 31, 2015. It is also well poised for growth, particularly in the U.S. drugstore market, which is ripe for consolidation.

Railroads

 

• Union Pacific (NYSE: UNP) – Like its competitors, the venerable railroad operator has struggled to maintain revenue growth, but it is still very profitable. The Union Pacific gave investors a dividend yield of 2.15% and a return on equity of 24.61% on March 31, 2015. It is also positioned for growth because of the clogged highway system in the United States. Even the advent of next generation ground transportation technologies such as Hyperloop could be good for Union Pacific because it owns the rights of way such systems would operate upon.

My Goal Here

My purpose with this little essay is to list a few really good stocks that an average person could buy and hold for the long term. The risks here are limited, but there is potential for growth. There are obviously a few more stocks out there that meet these criteria. I’ll try to list a few of them in the future.

Disclosure: Your blogger owns shares of Kroger and shares of eBay Inc. (NASDAQ: EBAY) that could be converted into PayPal during the IPO.