Investors are repeatedly nagged to remember that past performance is not indicative of future returns. It’s for their own good, and it happens to be true. But that does not mean some of today’s best stocks can’t continue to put up outstanding returns in the years and even decades ahead. Good management, innovation and being in the right business at the right time can go a long way toward ensuring a company’s long-term success.
It’s impossible to know what the next 10 years will bring. Technologies that are unimaginable today will emerge, and new ones – like self-driving cars and humanoid robots – could become mainstream. Picking stocks set to benefit from such changes is not only hard, it’s speculative. (That’s a fancy word for “risky.”)
There’s a better way to bet on the future. Rather than try to guess where the world is headed, take a cue from the more recent past. There’s no shortage of current business trends that will take a long time to run their course. Companies that are winning now and also positioned to keep growing as markets expand and mature can be great ideas for the long-term. From a risk-reward perspective, you may find the best stocks to buy for the next 10 years by sticking to what’s working today.
These 10 stock picks have the wherewithal to make the next decade as good as the past one.
Data is as of Dec. 8, 2017. Click on ticker-symbol links in each slide for current share prices and more.
- Alphabet (GOOGL (opens in new tab), $1,049.38), the parent of Google, forms one half of a digital advertising duopoly. Together, Google and Facebook (FB (opens in new tab)) will rake in 63% of every dollar spent in digital ads in the U.S. in 2017, according to eMarketer. Google alone will claim 40%.
When all is said and done this year, Google (including YouTube) likely will book $35 billion in total digital ad dollars in the U.S. That’s up nearly 20% over 2016.
But there’s more. Like Facebook, Alphabet is plowing investments into the next big things. It has artificial intelligence, machine learning and virtual reality in its sights, and it’s already a major player in cloud-based services.
No wonder analysts expect Alphabet's earnings to grow at an average annual pace of 21% for the next five years.
No one wants to compete with Amazon.com (AMZN (opens in new tab), $1,162.00), but increasingly, more companies find they have no choice.
The largest U.S. e-commerce company has a voracious appetite for growth and has proved willing to forgo profits in pursuit of it. As a result, Amazon has put relentless pressure on retailers that sell everything from clothes to consumer electronics. Now it’s the grocery business’ turn, thanks to the company purchase of Whole Foods. That’s a twofold burn, as Amazon can absorb thin margins to snuff out competitors, while using Whole Foods physical locations as distribution centers for its delivery efforts – which also can put the pressure on traditional grocery players.
Amazon also is dipping its toes in the shipping services business, which could be a threat to United Parcel Services (UPS (opens in new tab)) and others. Amazon’s interest in the health care industry, meanwhile, has everyone worried, from pharmacy chains to pharmacy benefits managers to medical supply distributors.
Amazon’s willingness to constantly invest in the business and try new areas of growth have made it the titan it is today. It also happens to be a strategy for continued success over the long haul.
If you like Amazon for long-term growth, then you also have to love China’s Alibaba (BABA (opens in new tab), $177.62).
Alibaba isn’t quite a mirror image of Amazon – whereas Amazon actually holds physical inventory, Alibaba is instead a global marketplace that provides a platform to third parties. Still, with founder Jack Ma, the Chinese e-commerce giant has its own version of Amazon CEO Jeff Bezos. And like Amazon, Alibaba is willing to invest heavily in its own business to drive growth and enjoys expanding markets for its goods and services, too.
Also similarly, Alibaba is more than an e-commerce platform – its tentacles spread to cloud computing services, payments, media and navigation.
Analysts at UBS, who rate shares at “Buy,” say Alibaba is unique in that it has large business in both e-commerce and advertising. It also has above-average growth and operating profit margins. “We remain constructive long-term based on expectations for strong revenue growth, sustainability of margins and strong strategic positioning,” the analysts say.
One of the greatest stocks of all-time is poised to be one of the top stocks of the next decade, too. And it comes down to more than Apple (AAPL (opens in new tab), $169.37) being able to crank out hit iPhones.
While iPhone revenues are still growing, the Services division – offerings such as iTunes, the App Store and Apple Pay – is becoming an increasingly large part of Apple’s revenue pie.
As Kiplinger reported in December, analysts at UBS say, “Underlying demand is strong and not just for the iPhone. iPad has turned the corner with two periods of growth, Macs surprised to the upside (in the quarter ended Sept. 30), Apple Watch units jumped by over 50%, and services (such as Apple Music) increased by 24%.”
Also, don’t discount the aspect of Apple that locks people in. As long as consumers stay within the Apple ecosystem – and they are famously loyal to the brand – upgrades, replacements and subscriptions will ensure revenue growth over the years and decades ahead.
Warren Buffett is 87 years old, and he’s already grooming potential successors in Todd Combs and Ted Weschler – leaving many to wonder how much longer, exactly, the Oracle of Omaha will steer Berkshire Hathaway (BRK.B (opens in new tab), $196.44).
A bet on Berkshire isn’t just a bet on Warren Buffett, however. It’s a bet on the U.S. economy writ large. After all, Berkshire is a conglomerate that owns dozens of businesses. Among the most notable is Geico, the popular auto insurer, but the “Powerhouse Six” non-insurance businesses – which consists of its Burlington Northern Santa Fe railroad, Berkshire Hathaway Energy, Marmon, Lubrizol, IMC and Precision Castparts – make the company a bedrock play on long-term economic growth.
Buffett’s stock picks get the most media attention, and investment gains are the largest single segment of net income – but at 33%, that’s still only a third of the company’s profits.
Lastly, Berkshire is always on the prowl for big acquisitions to add to growth. The company has about $100 billion in cash, so it can make more than one big deal – if the price is right. If you’re bullish on the U.S.A. for the next 10 years, you’ve got to be bullish on Berkshire Hathaway, too.
Charles River Laboratories
- Charles River Laboratories (CRL (opens in new tab), $103.84) is the only small, relatively unknown stock on this list, but its unique position in the ever-expanding health care sector should let it pack a powerful punch.
Charles River provides products and services to help researchers with their laboratory work, from safety assessment to research models to even staffing and regulatory support. Research and development spending might ebb and flow, but it never dries up completely.
Analysts are looking for steady, double-digit growth ahead. Earnings are forecast to increase at an annual average of 11% over the next five years, according to Thomson Reuters. And with a market value of just less than $5 billion, Charles River Labs is one of five mighty mid-caps that aren't yet worried about business’ law of large numbers, which says the bigger a company gets, the more difficult it becomes to keep up the same percentage growth rate.
- Facebook (FB (opens in new tab), $179.00) has plenty going for it long-term. It’s expected to generate well-above-average profit growth. It enjoys a large and entrenched position in the digital advertising industry, which is expanding rapidly. And it has various businesses – think Instagram and WhatsApp – that have yet to reach their full potential.
Helpfully, it also has a 10-year plan, which includes heavy investments artificial intelligence, virtual reality, global connectivity and messaging platforms such as Messenger.
The near-term isn’t bad either. Market researcher eMarketer says Facebook will capture 20% of all U.S. digital adverting dollars in 2017. Digital revenues will grow 40%. And importantly, the digital ad market has ample growth left in it.
Shares trade at 27 times analysts’ expectations for next year’s earnings, which sounds a bit rich – until you realize those same analysts project profits to grow by more than 28% annually for the next half-decade.
- Nvidia (NVDA (opens in new tab), $191.49) has been on a remarkable run since the start of 2016 thanks to explosive growth in several areas, most notably artificial intelligence.
It turns out the company’s graphics chips aren’t just great for PC gaming. They’re also integral to running data centers for cloud computing and have a place in technologies such as self-driving cars. That’s why analysts are so bullish on the name – Alphabet, Facebook, Microsoft (MSFT (opens in new tab)) and Amazon all rely on Nvidia hardware in their data centers, and Audi, Toyota (TM (opens in new tab)) and Volvo all feature Nvidia products in their vehicles.
Shares might look a bit pricey right now. After rising 650% in two years, NVDA trades at 41 times estimated earnings, versus good-but-not-great expected profit growth of 15% annually over the next five years. But NVDA’s central place in so many emerging technologies could make the premium worth it.
A decade from now, today’s prices may look like a bargain.
- Salesforce.com (CRM (opens in new tab), $104.28) was doing cloud-based computing before it was cool. The company sells subscriptions to web-based applications to help companies increase and manage their sales.
Cloud-based services are all the rage now – just ask Alphabet, Amazon or Microsoft. And CRM refuses to cede its position. It’s expanding into data analytics and digital marketing, and is willing to pull the trigger on acquisitions to boost growth and leverage costs. For example, Salesforce bought Demandware for $2.8 billion in 2016 to fold in its digital commerce market operations.
Salesforce went public just 13 years ago, but it has become a subscription-software juggernaut worth more than $75 billion in short order. Investors can expect even more great things ahead. Analysts forecast average annual earnings growth of 25% for the next five years.
After recommending so many hot stocks, it’s time to cool down with a solid, dependable dividend payer.
- Verizon (VZ (opens in new tab), $51.09), the telecommunications giant worth more than $210 billion, is as blue-chip as they come. Indeed, it’s a member of the 30-stock Dow Jones Industrial Average, as well as the Kiplinger Dividend 15. The company is working diligently to position itself for growth in digital content and advertising – that’s what prompted it to purchase Yahoo and AOL – but don’t turn your nose up at the boring business of telecommunications and its income generating prowess.
The yield on Verizon’s dividend stood at 4.7% as of Dec. 8. That’s practically a fountain of income in these days of rock-bottom interest rates. It’s also a dividend you can count on. VZ has hiked its dividend every year for 10 consecutive years, and its payout ratio stands at just 63%.
A properly diversified portfolio should always encompass some defensive names to add ballast during down markets. Whatever stocks do over the next 10 years, it’s a safe bet that they will do so with at least a touch of drama.
Dan Burrows is a financial writer at Kiplinger, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
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