- (0:30) - How Long Should You Own A Stock?
- (2:40) - General Electric Leaves the Dow and Bad News for Starbucks
- (6:30) - Criteria For Buy and Hold Stocks
- (11:35) - Tracey’s Top Stock Picks: PFE, XOM, TR
- (19:00) - Episode Roundup: Podcast@Zacks.com
Welcome to Episode #97 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
Two stocks were recently in the news: General Electric GE and Starbucks SBUX.
General Electric is going to be removed from the Dow Jones Industrial Average after 122 years. It’s the oldest member of the index.
Starbucks warned on its guidance for the second quarter and questions were raised about where future growth may come from.
Both are the type of stocks that investors like to hold for long periods, meaning 5 to 20 years.
But should you own them for that long? And when do you know to sell?
Value Investing and Buy and Hold
Value investing and long term buy and hold investing can often go hand-in-hand because value investors like to buy stocks that are being rejected by the rest of Wall Street, and then they hold until there is a turnaround.
Value investors usually have the patience to stay in a stock for years.
Warren Buffett, the most famous value investor in the world, also buys and holds, often for decades.
But even Buffett would agree that not all stocks are meant to be held for a long time period. For example, Buffett just sold out of his recent IBM position even though he had only owned it a few years.
How long should investors hold a stock?
There are 4 criteria investors might want to consider.
Criteria for Long Term Buy and Hold Investors
1. Have the company fundamentals changed? Is it still in the same business as when you originally bought the stock?
2. Do you trust current management? If you own a stock for decades, management should change.
3. Are the hardships easy to turn around? Some companies seem to be on a permanent turnaround.
4. Think about how the company fits into your long-term investing plan. Does it still have a place?
Former Long Term Holds: Are They Buys Now?
These 3 companies have been in many investor portfolios over the years. Some investors have likely owned them for decades.
But should they be going forward?
1. Pfizer PFE was one of the most popular stocks of the 1990s. From Jan 1, 1990 until Jan 1, 2000, the stock rose over 1000%. The other big cap drug stocks weren’t too shabby either. But over the last 18 years, it’s been a different story. Still, the shares look cheap now. Pfizer has a forward P/E of just 12. Should you look at Pfizer if you’re a long-term investor?
2. ExxonMobil XOM will now be the oldest component in the Dow once GE is removed. It looks pretty cheap, with a forward P/E of 16.9 and earnings growth expected of 33%. How did you do if you held it the last 18 years though?
3. Tootsie Roll TR is known as a “secret company” as it won’t talk with analysts and holds no investor conference calls. Yet the stock was one of the best performers in the last bull rally of 1982 to 2000. One family owns 51% of the shares, however, and the succession plan is unknown. A long-term hold in the 80s and 90s worked with Tootsie Roll, but what about now?
Find out all of Tracey’s long-term investor tips on this week’s podcast.
[In full disclosure, Tracey owns shares of SBUX in her personal portfolio.]
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Pfizer Inc. (PFE) : Free Stock Analysis Report
General Electric Company (GE) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Starbucks Corporation (SBUX) : Free Stock Analysis Report
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