It can take a long time to research companies and figure out which investment is right for you. And even after you've finished the hard part of picking a stock, there's still no guarantee that its share price will go up, of course.
But you can increase your chances of finding solid long-term investments -- think decades, not months -- by looking for companies that have the right management, strong financials, and the potential to move into new markets. To help you find those companies, we asked three Motley Fool investors for stocks that they think you can buy and hold for decades, and they came back with Prudential Financial (NYSE: PRU), 3M (NYSE: MMM), and Microsoft Corporation (NASDAQ: MSFT). Here's why.
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A company so solid it uses an actual rock as its corporate symbol
Chuck Saletta (Prudential Financial): For a company's stock to be worth holding for decades, it needs to be a solid enough business that investors have good reason to believe it will last at least that long. The term "rock-solid" comes to mind, which helps make insurance giant Prudential Financial worth considering. Prudential Financial cares so much about its underlying financial strength that it uses the Rock of Gibraltar as its corporate symbol.
It backs up that symbolism with real strength, too. Its balance sheet sports a debt-to-equity ratio below 0.7 and a current ratio above 1, both of which indicate a conservative approach to managing its own finances. And while past performance isn't a guarantee of future results, Prudential Financial has over 140 years of insurance and financial operations under its belt. That gives credibility to its claims of financial strength, as those 140 years include some pretty tumultuous economic times.
Perhaps even better for investors looking to initiate a position, Prudential Financial trades at what looks like a reasonable valuation. Its shares can be purchased for around 10 times its expected forward earnings and just above its book value. Although insurance profits can swing wildly from year to year if claims exceed expectations, over the next five or so years, Prudential Financial is expected to be able to increase its earnings by just over 11% annualized.
As a rock-solid company at a reasonable price and with well over a century of proven staying power, Prudential Financial may very well be worth buying today to hold for decades.
Diversity, thy name is 3M
Anders Bylund (3M): The maker of Post-it notes, Scotch tape, and Filtrete air filters needs no introduction. 3M and its products have become an essential part of everyday life.
As familiar as its consumer brands are, 3M's largest and most profitable business is comprised of industrial products. Industrial-grade filters, adhesives, and advanced materials account for 34% of 3M's total sales these days. In fact, consumer products form the smallest division among the company's five reportable segments at just 15% of sales.
So the 3M you know is actually just the tip of a much larger iceberg. Peeking beyond that eye-catching but low-growth side business, you'll find that the company's healthcare operations run at much wider profit margins while 3M electronics are growing like wildfire in markets like China and Taiwan.
3M is a leader in many important markets, from bandages and masking tape to smartphone screen films and the vibration dampeners in your car. In many of these fields, the company has no comparable rivals. Overall, there's nothing else quite like 3M on this planet (though I can't speak for Ross 128 b).
Thanks to this mind-bendingly diversified business model, 3M is built to last for decades and decades. Along the way, you'll benefit from a stock that has doubled the returns of the S&P 500 over the last five and 10 years and increased its dividend payouts every year without fail since 1959.
That's the kind of stock certificate you can simply buy once and stuff under your pillow, not losing one minute of sleep over that investment for a very long time.
A cloud computing investment for years to come
Chris Neiger (Microsoft): Microsoft has essentially reinvented itself since CEO Satya Nadella took over several years ago. Under Nadella's leadership, the tech giant has transformed from a software to a cloud computing company -- and the results have been fantastic.
Microsoft's cloud computing business now has an annualized run rate of $20 billion, a goal Nadella set three years ago and the company achieved ahead of schedule. Commercial cloud revenue jumped 56%, to just over $5 billion, in the fiscal first-quarter 2018 and Microsoft's Intelligent Cloud business popped by 14% year over year. These gains, along with strong growth in Office 365 subscriptions, led investors to push the company's share price up 30% in 2017.
Microsoft has begun to find a balance between relying on software to bring in significant revenue with its need to pursue new and lucrative long-term businesses. That's why Microsoft's cloud computing revenue is so encouraging. Gartner estimates that the market for public cloud computing will be worth $411 billion just two years from now and Microsoft already holds the No. 2 spot in this market, with Amazon.com taking the top spot. Other players are starting to take aim at Microsoft's cloud business, but the company is forging new partnerships in order to maintain its lead.
Investors looking for a solid long-term investment would be wise to remember Microsoft's cloud potential. And if you're still skeptical, remember that the company also has a 1.8% dividend yield and 14 consecutive years of raising its dividend.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Anders Bylund owns shares of Amazon. Chris Neiger has no position in any of the stocks mentioned. Chuck Saletta owns shares of Microsoft and Prudential Financial. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends 3M and Gartner. The Motley Fool has a disclosure policy.