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When it comes to stocks, big isn't always better. But if you choose well, big companies are more likely than small ones to deliver consistent returns over the long haul. And they're far more likely to withstand the economic, political and technological shocks that can derail small companies.
Big-company stocks have hardly been immunized from the market's current turmoil. As of October 27, Standard & Poor's 500-stock index is down 46% from its record high, set on October 9, 2007. But lower prices today makes it more likely that stocks will match its historical long-term return of 10% year.
We here at Kiplinger's Personal Finance put our heads together in search of ten giants (which we defined as companies with a market value of at least $10 billion) that we think can better the market's long-term results over the next decade. We came up with an eclectic list that contains a number of names you'd expect to see and some that may surprise you. Below are our ten picks for the next ten years.
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PROCTER & GAMBLE (PG). If you're a Procter & Gamble shareholder, it must feel nice to go to bed knowing that hundreds of millions of consumers around the world will use Gillette razors, Crest toothpaste and Head & Shoulders shampoo the next morning. People need to shave, bathe and brush their teeth in any economy, and P&G's brands are so powerful that it can pass on price increases in raw materials to its loyal customers.
This consistency has allowed P&G to compound earnings by 10% a year over the past ten years; Wall Street projects a like result over at least the next five years. Factor in a 3% yield and a rising dividend stream and it equals an attractive ten-year holding.
ELECTRONIC ARTS (symbol ERTS). Spore, the latest game from Electronic Arts, is a metaphor for the company itself. In the game, a single-celled organism evolves by eating other animals and eventually masters the universe. Electronic Arts has grown mainly by acquisition to become the biggest video-game software company; sales for the fiscal year that ends next March should top $5 billion.
Electronic Arts dominates a rapidly expanding universe. Sales from consoles and software together hit $18.8 billion in 2007, a 43% increase from 2006, says the NPD Group. Not even the torpid economy is likely to dent the industry's -- or EA's-rapid growth. Analysts see the company's earnings rising 21% annually over the next three to five years.
FIRST SOLAR (FSLR). As the price of oil has retreated, investors have lost interest in alternative-energy stocks. But once global economies right themselves, demand for oil will rise and so will its price. The need for cheaper and cleaner fuel sources will once again become plain, and alternative-energy stocks will revive. One of the biggest beneficiaries is sure to be First Solar. Based in Tempe, Ariz., First Solar produces solar modules using a proprietary thin-film semiconductor technology that uses far less silicon than other production processes. The company sells the majority of its modules in Germany, which subsidizes solar energy, but First Solar has deals with utilities to build photovoltaic generating plants in California, Florida and Nevada.
Its growth has been breathtaking. In 2006, when First Solar went public, it earned 7 cents a share on $135 million in revenues. In 2008, analysts estimate, the company will earn $3.67 per share on sales of $1.2 billion. And analysts see earnings growing 56% annually over the next few years. The stock, which is up six-fold from the IPO, is risky, but it will deliver big rewards as long as oil prices recover and governments continue to subsidize solar power.
GILEAD SCIENCES (GILD). Gilead Sciences has built a formidable franchise in drugs that treat HIV. They provide about 75% of the firm's revenue, which is expected to exceed $5 billion this year. Those drugs should provide the Foster City, Cal.-based biotech company with robust growth in the coming decade, even as it diversifies into other promising areas, such as medicines that treat hepatitis, hypertension and influenza. Gilead's portfolio of drugs faces little threat from generics, and the company can use its ample cash reserves ($3 billion as of midyear) to supplement its development pipeline via acquisitions and partnerships.
GOOGLE (GOOG). Google is the single most visited Web site in the U.S., a cultural phenomenon and a verb. And in just four years as a publicly traded company, it has achieved the status of Internet behemoth, with a market value in the neighborhood of $105 billion.
But as a business Google is an advertising firm; pay-per-click search-engine advertising represents 90% of revenues, and all advertising taken together brings in 97%. Enormous profits over the past five years have endowed Google with the cash to pursue such lofty goals as projecting interactive satellite images of the cosmos onto your computer screen and digitizing all books ever written.
Yet Google's strength in its basic ad business is reason enough to love it. As more ad dollars shift from old media to new media, Google's scale and formidable brain trust give it the strength to remain the market leader. And despite the company's immensity, analysts expect earnings to grow at a hefty 22% annual pace over the next few years. Ten years? Sure.
POSTED BY: A senior citizen (November 06, 2008 11:10 AM)
I thoroughly enjoyed reading your opinion of your 10 recommended stocks for the next 10 years. Thank you.
POSTED BY: monkeyfurball (January 04, 2009 07:09 PM)
Good picks. I already own 5 of them even before your story. Monsanto will double in the next 24 months. Berkshire will not double in the next 10 years. It basically an insurance company with only minimal upside due to its size.
POSTED BY: sw (January 06, 2009 10:04 AM)
In Kiplinger Personal Finance, Nov. 2008, p. 4, under Log On is a comment on the link to this list and a "Hint" which says Google and Berkshire are not in the list of ten. Berkshire is not; however, Google is.
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