If you’re looking to build your portfolio for the long term, you want stocks that will continue to increase in value over the years.
Long-term investing makes better financial sense than short-term trading. Buying the dips and selling the rips is notoriously hard over a long time period. By contrast, it’s hard to find any extended time period in the market when buying and holding hasn’t produced positive returns.
Another benefit to long-term investing is that it reduces your costs. You can compound your earnings that come from dividends, so they continue to earn for you. But how do you pick the winners of the next decade?
How To Choose Stocks for Long-Term Investing
The most important thing to consider when selecting a stock for long-term investing is the fundamentals, such as:
- Revenue growth
- Profit growth
- Increasing margins
- Low debt to equity ratios
- Insider buying (not selling)
- Share buybacks
Look also at how consistently the company has been in paying investors and raising dividends. A company that meets these criteria is financially stable and can handle economic changes.
Multiples are critical to examine too. You can assess whether a stock is overvalued by comparing the price of the stock to its earnings per share. A higher ratio indicates that the stock is likely overpriced and not a solid investment.
While the market has its fluctuations, and no company is immune, earnings should rise over the years. Pay especially close attention to future projections because they tell you if a company is expected to fare well into the future.
High price-to-sales multiples can also indicate that a company is overvalued. If you’re not sure where to begin, compare a company’s P/S ratio and P/E ratio to those of its rivals.
With all that said, two stocks that you might want to add to your portfolio to hold onto forever are Disney and Apple. Here are some reasons why.
Disney has seen a big boost in its streaming subscriptions lately, even eclipsing those of its arch-rival Netflix. Moreover, Disney acquired its 200 million subscriptions in record fast pace, beating Netflix on that count too.
The Mouse House is now the largest streaming service, but the company is already thinking about what changes it needs to make in the future to stay ahead of a growing list of competitors that include Peacock, Apple TV, Amazon Prime Video and Hulu.
Streaming is only one aspect of the entertainment giant. Theme parks play a major role in revenue, with operating income increasing from $356 million to $2.2 billion. The movie studio is also reporting a bottom line in the black.
One reason Disney is successful is that each aspect of the company feeds into the other aspects to generate more revenue for all areas. It’s this combined effort that makes the stock appealing to investors. Wall Street anticipates that Disney’s earnings will grow by around 40% over the next five years.
Apple is more than just an electronics manufacturer. It’s a brand that sells loyalty along with electronic devices.
Consider the economic moat that Apple holds. With a simple delete, Apple was able to remove Parler from its AppStore, and in effect cut its growth potential in one fell swoop.
Could Apple do so to Facebook also? Theoretically, it could though in all likelihood it won’t. The power it possesses to do so, though, should not be lost on a potential investor.
Now consider when you go to a restaurant that requires a QR code to view the menu, it’s only possible with a phone, and if you’re in the US the odds are high you have an iPhone, and won’t relinquish it.
Will parents be able to check their kids into school anymore without a phone? In the case of some schools, the answer is already no.
Fast forward to the future and you might wonder: will I be able to start my car without my iPhone?
The takeaway is to operate in everyday life, you will need a phone, and the more apps you download the higher the friction to giving up your existing iPhone.
And that means with every upgrade cycle, the chances increase that you will buy a new iPhone. Apple can boost its prices over the years because it can count on customer loyalty. All that translates to an investment thesis that convinced the most famous investor of all time, Warren Buffett, to bet a massive chunk of his portfolio on this single stock.
The Benefit of Holding Onto Stocks Long-Term
Historically, the stock market has led the economy by about the same range of six to 12 months. If stocks begin to fall, the economy may be reaching its peak. If stocks begin to rise consistently, you can expect the economy is recovering even if it appears weak.
You can feel confident that your stocks will recover from any losses if you hold onto them long enough. With a proven history, these companies will make the necessary changes to come out ahead, ensuring that your portfolio is still safe and solid. Apple and Disney provide a good start on that long-term portfolio if you’re ready to invest.