8 Stocks You Will Want to Own for the Long Term, or Forever

These investments are the best choices for lasting wealth

Microsoft CEO Satya Nadella

Because they're often told you can't time the market, individual investors are frequently looking for the best stocks to hold for the long term. And none other than billionaire investor Warren Buffett, in his 1988 chairman's letter to shareholders of Berkshire Hathaway Inc., wrote that "when we own portions of outstanding businesses with outstanding managements"—as Berkshire Hathaway does and individual investors can do by purchasing stocks on the open market—"our favorite holding period is forever."

Forever is an exceptionally long time, even for a buy-and-hold investor like Buffett. But his statement raises the question: “Which stocks are worth holding forever?”

Buffett's answer to that question was released in the Berkshire Hathaway 2019 Annual letter: "We constantly seek to buy new businesses that meet three criteria. First, they must earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers. Finally, they must be available at a sensible price."

With that in mind, here are eight suggestions, including Berkshire Hathaway itself and three companies (Apple, Johnson & Johnson, and Amazon.com) in Berkshire's investment portfolio.

Apple (AAPL)

On August 2, 2018, Apple became the first U.S. company to have a market capitalization of $1 trillion. As of December 31, 2019, Apple was the largest holding in the Berkshire Hathaway portfolio, with a value of almost $72 billion.

Apple held a 49% share of the U.S. smartphone market in the fourth quarter of 2019 and also led in the tablet industry, with a market share of 36.5%.  And on February 13, 2020, Apple continued its payment of a 77 cent quarterly dividend.

Johnson & Johnson (JNJ)

This New Jersey-based health care and pharmaceutical giant is known in financial parlance as a “dividend aristocrat.” Since at least 1973, Johnson & Johnson has increased the value of its annual cash dividends every single year. In 2019, it paid dividends totaling $3.75 a share. And on March 10, 2020, it paid a quarterly dividend of 95 cents a share.

Over a long period, dividends reinvested in J&J stock will enable you to accumulate a larger number of shares, which can be worth a substantial amount if those shares appreciate. And in the 10 years ended on April 2, 2020, the stock's split-adjusted return (not including reinvested cash dividends) was 96.36%.

Dover (DOV)

This Chicago-based business concentrates on fluid management, industrial products, and manufacturing support systems. That’s not exactly the stuff of riveting dinner party banter. However, Dover, like J&J, is a dividend powerhouse and has also increased its annual cash dividend every year since at least 1973.

In 20019, Dover paid dividends totaling $1.94, and on March 16, 2020, it paid a quarterly dividend of 49 cents.

As of April 2, 2020, the stock's 10-year split-adjusted return (not including cash dividends) was 155.8%.

Microsoft (MSFT)

In April 2019, Microsoft became the third company to achieve a market capitalization of more than $1 trillion, and co-founder Bill Gates is perennially among the world's wealthiest people.

Under the direction of Chief Executive Officer Satya Nadella, who had been in charge of the company's cloud infrastructure and services business, Microsoft has been becoming less reliant on its Office software suite and Windows operating system for revenue. In the second quarter of fiscal year 2020, which ended on December 31, 2019, the company's revenue from server products and cloud services rose 30%. Revenue from its Azure cloud services alone grew 62%.

Microsoft has also paid a quarterly dividend since the fourth quarter of fiscal 2004. In fiscal year 2020, it was paying a quarterly dividend of 51 cents a share.

McDonald’s (MCD)

McDonald’s is by far the biggest fast food chain in the U.S. by sales, with annual revenue almost twice that of its closest competitor, Starbucks. It also had the most valuable food brand in the world in 2019, at $130.4 billion.

McDonald's has increased its total annual dividend payments every year since 1977. In 2019, its annual dividend amounted to $4.73, up from $4.19 in 2018.

In the 10 years ended on April 2, 2020, the stock's total return, excluding reinvested dividends, was 132.5%. Including reinvested dividends, it was 190.54%.

Amazon.com (AMZN)

Amazon.com is the second-largest retailer in the world by revenue, behind only Walmart; its 2019 net sales totaled $280.5 billion.  But like its rival Microsoft, Amazon is increasingly relying on its cloud computing business, called Amazon Web Services, to drive revenue and profit gains.

The stock's average annual return from 2015 to 2019 was 47.23%. And it was the second company to reach a $1 trillion market capitalization, on Sept. 4, 2018.

In Forbes' 2019 ranking of the world's richest people, Amazon founder Jeff Bezos was No. 1, with $131 billion.

Alphabet (GOOGL, GOOG)

Aside from the fact that Alphabet pretty much controls the entire search engine universe (via Google) and online video (via YouTube), it’s also sitting on a ton of cash and marketable securities: $119.7 billion as of the end of 2019. And on January 16, 2020, Alphabet became the fourth company to have a market capitalization of more than $1 trillion.

Following a stock split in 2014 that was designed to maintain co-founders Sergey Brin and Larry Page's control over the company, there are now two different classes of publicly traded Alphabet shares. Each Class A share, with the symbol GOOGL, confers one shareholder vote. Holders of Class C shares, which trade under the symbol GOOG, have no voting rights. (There are also privately held Class B shares, which are held by the company's founders and executives and confer 10 votes per share.)

Berkshire Hathaway (BRK.A, BRK.B)

Finally, we're getting to Buffett's own company. At $271,475 on April 2, 2020, Berkshire Hathaway's Class A stock (BRK.A) price was so expensive, most Americans would have to work several years to buy even one share. The Class B shares trade at a much lower price: $179.73 on that date. 

Buying Berkshire stock is like betting on Buffett, who built on his investments in textile mills in the 1960s to become the world's third-richest person in the 2019 Forbes ranking. It also means buying a piece of a large stable of companies both well-known and obscure, including insurance company GEICO, fast-food chain International Dairy Queen, battery maker Duracell, packaged food giant Kraft Heinz, paint maker Benjamin Moore, and Acme Brick Company.

Only 55 years have passed since 1965, which is a lot shorter than forever. But if you had invested $1,000 with Buffett that year, it would have been worth $27 million in early 2020.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

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