John Buckingham
John Buckingham, principal and portfolio manager at Kovitz, which manages $7 billion in assets, Aliso Viejo, California. He is editor of The Prudent Speculator. ThePrudentSpeculator.com
Companies face many challenges when it comes to boosting their stock prices over long periods of time. The challenges can range from beating the competition and developing successful new products to withstanding big swings in energy prices and interest rates.
Bottom Line/Personal asked master stock picker John Buckingham which 10 stocks can do well over the next 10 years despite the challenges ahead…
The companies I want to invest in for the long term all pay healthy dividends and have the following traits—they dominate their industries with a lasting competitive edge…have a solid balance sheet…have shareholder-friendly management with the ability to adapt to changing conditions…their stocks are undervalued…and their products and services tap into long-term growth trends. My favorites now…
Apple (AAPL). Skeptics question whether this consumer-electronics giant, which recently posted quarterly earnings of $18 billion, the most of any company ever, can continue outdoing itself, especially when it is so heavily reliant on one product, the iPhone. But soaring iPhone sales are nowhere near their peak yet, particularly in emerging markets. And Apple boasts a strong product pipeline that can increase earnings for years, including its new Apple Pay smartphone payment system and the Apple Watch. I certainly don’t expect the stock to match the average annual return of 36% that it achieved over the past decade. But the company will continue to be a cash-generating machine and provide attractive stock returns even if its new products are just moderately successful. Recent yield: 1.5%. Recent share price: $126.46.
Seagate Technology (STX) manufactures hard disk drives for digital-information storage in desktop computers, laptops, notebooks and large servers used by businesses and institutions. Massive industry consolidation in the last decade has left Seagate with control of nearly half the global market. At the same time, the demand for more and more data storage, both on individual computers and through cloud services, is expected to increase by 30% or more annually for many years. Seagate faces a challenge in that Apple’s iPads and other tablet computers use a competing technology known as the solid-state drive, which stores data on flash memory chips, but the threat is modest. Though these new drives offer faster performance and are less likely to crash, they can be eight to 10 times more expensive than traditional drives. Seagate also markets a hybrid drive that offers the speed and stability of solid state with the affordability of hard disk drives. Recent yield: 3.5%. Recent share price: $61.16.
Symantec (SYMC). Best known for Norton AntiVirus, Symantec is the world’s largest security-software vendor. High-profile data breaches at corporations ranging from Anthem and Sony to The Home Depot and Target have increased demand for sophisticated software to thwart hackers. The stock has underperformed as the company has struggled to integrate a multibillion-dollar acquisition, Veritas, which makes software that allows corporations to analyze massive amounts of data more effectively. But Symantec has wisely decided to spin off Veritas as a new publicly traded company by the end of 2015. Each business will be able to focus more effectively on its core strengths and grow faster. Recent yield: 2.3%. Recent share price: $26.15.
Aetna (AET) provides managed health-care services to 23.5 million members in the US. It can increase its base as more uninsured Americans become insured under the Affordable Care Act. Although increased competition among managed-care organizations and decreasing payment rates for government-sponsored medical programs will hurt Aetna’s profit margins, strong growth prospects will help offset lower profitability. Recent yield: 1%. Recent share price: $97.08.
Amgen (AMGN), the largest biotech company in the US, had sales of $19 billion over the past year, boosted by treatments for rheumatoid arthritis (Enbrel) and anemia in kidney dialysis patients (Epogen). It has a diverse portfolio of new drugs with accelerating sales, including Prolia for osteoporosis. Amgen also has a pipeline of four new drugs awaiting FDA approval, including treatments for high cholesterol and ovarian cancer. Recent yield: 2.1%. Recent share price: $153.18.
Deere & Co. (DE). There is a growing need in emerging nations such as Brazil, China and India for the kind of sophisticated farm equipment that Deere makes. In the US, falling prices for wheat and corn and soft tractor sales are likely just temporary. Continued demand for corn abroad as well as for ethanol-based fuels will push up prices over the long run. Recent yield: 2.7%. Recent share price: $89.37.
Tyson Foods (TSN), the top US producer of chicken and pork, has vast export potential. Meat consumption is rising markedly in emerging markets as economic conditions improve and diets shift. That should boost Tyson’s international growth—it now sells to 130 countries—which currently is less than 20% of overall revenue. Tyson also will benefit from its 2014 acquisition of Hillshire Brands, maker of Jimmy Dean sausages and Ball Park hot dogs. Recent yield: 1%. Recent share price: $40.79.
Royal Caribbean (RCL), which operates 42 cruise ships and has six more under construction, has the newest and most luxurious fleet. It is primed for increased business as millions of baby boomers retire and pursue more leisure travel. Management is planning to move ships into the Asia-Pacific region to access the fast-growing Chinese market. Recent yield: 1.6%. Recent share price: $76.75.
Royal Dutch Shell (RDS.A). As oil prices have plunged, the industry has cut back on new wells and development, which means that growth in global oil supplies will shrink in the coming years. When global demand for oil eventually picks up, prices will rebound and energy stocks likely will soar. Royal Dutch Shell, the world’s second-biggest oil company, is the least risky way to bet on this rebound thanks to its fortress-like balance sheet, low debt levels and big dividend payments. Recent yield: 4.7% Recent share price: $65.35.
Wells Fargo (WFC), the fourth-biggest US bank, is the country’s healthiest major bank. A rise in interest rates, which is likely over the next few years, will allow it to charge more for loans and will increase the spread between its loan rates and the low rates it pays on deposits. Until then, profits at most banks will continue to be hurt. Despite that, Wells Fargo has managed to post four consecutive years of record profits and grow its customer base, loans and deposits. Recent yield: 2.5%. Recent share price: $54.86.
