Based on the weak and volatile stock market returns of the past decade, many investors believe that the traditional strategy of buying and holding a stock for many years is dead. But some top mutual fund managers say that if you pick the right stocks, that strategy could still deliver strong returns. To determine how to pick the best stocks to hold for at least the next 10 years, Bottom Line/Personal spoke with a master of buy-and-hold investing—Donald Yacktman, whose Yacktman Focused Fund delivered the best returns of any diversified US large-cap stock fund over the past 10 years.

FOCUS ON MEGA-CAPS

I focus on great businesses whose products are staples of today’s global society. That affords these businesses long-term predictability and consistency even in an environment where there is a high degree of uncertainty. A company must have brand-name products and services that dominate their markets and are tapping into sustainable trends…operations on a scale big and efficient enough to reap cost savings…and the ability to raise prices easily if inflation becomes an issue. Now I am finding the most compelling long-term buys among jumbo-sized companies—so-called mega-cap stocks—many of which are undervalued. My favorites now, starting with the most attractive…

Procter & Gamble (PG). This consumer-goods giant has more household brands that top $1 billion in annual revenue—such as Bounty and Crest—than any global competitor. Its predictability, market-share dominance and attractive prices make it the Yacktman Focused Fund’s top holding. Some investors worry about P&G’s sluggish growth in developed markets, but it is ramping up marketing in developing countries and divesting noncore businesses such as Pringles. Even modest annual growth of 2% to 4% in its mature markets, which is a very attainable goal, will yield attractive stock returns. 

News Corp. (NWSA). Despite the enormous scandal surrounding News Corp. and CEO Rupert Murdoch, the global media giant has become a model of how to successfully transition from old media (newspapers and book publishing) to the realities of the 24-hour news cycle. Most of the company’s earnings now come from its cable network business, including Fox News, Fox Sports, FX and a variety of international channels throughout Asia, where News Corp. has become one of the leading Asian television providers.

The recent phone hacking scandal at News Corp.’s British newspaper News of the World and a British parliamentary committee’s scolding of Murdoch as “not a fit person” to run an international company were tremendously embarrassing but, from an investment point of view, rather negligible in the long run. Print news makes up a tiny percentage of its revenues worldwide. Moreover, the 81-year-old Murdoch has positioned News Corp. to maintain its position as a global powerhouse even after he steps down. 

PepsiCo (PEP). Investors who are focused on the fact that Pepsi plays second fiddle to Coca-Cola are missing the point. It really is the world’s most dominant snack food company, deriving less than half its revenues from cola and the rest from snack foods under the Frito-Lay division and other beverages including Tropicana juices and Gatorade. Consumers tend to accept snack food price hikes without switching brands. 

Microsoft (MSFT). Another favorite investment theme is “Old Tech”—mature technology companies that still dominate their markets but have settled into slower rates of sales and earnings growth. They are better investments than most hot young tech firms for the next decade because their stocks will do well with much lower risk. Microsoft’s products may not generate feverish excitement, but it has nearly $50 billion in cash, an ultra-cheap stock price and expectations so low that it needs only to deliver stable results for me to earn double-digit returns in the years ahead. I expect Microsoft will do much better than that, thanks to upcoming new product releases such as the Windows 8 operating system and Office 15 software package. 

Sysco Corporation (SYY) provides more than 400,000 food and equipment products needed to run eating establishments ranging from The Four Seasons restaurant in New York City to your local Applebee’s. Although food service is a low-margin business that can suffer during economic slowdowns, Sysco has increased sales and dividends (recently yielding 3.9%) every single year since it went public in 1970.