One of the relics of the global financial crisis is that the notion of long-term stocks was dead. Back then, many experts said investors needed to become more nimble going forward or risk being exposed when the next crisis hit.
Thing is from the March 10, 2009, market bottom through July 10, 2020, the SPDR S&P 500 ETF (NYSEARCA:SPY) jumped 456%. That time frame certainly qualifies as “long term” and includes an array of pitfalls for riskier assets. These include the European sovereign debt crisis, the taper tantrum, a trade war with China and the March 2020 slide at the hands of the novel coronavirus.
That SPY performance is proof positive long-term investing isn’t, but what does change over time are the names that qualify as the best long-term stocks. I’m going to use Coca-Cola (NYSE:KO). For generations, the world’s largest soft drink maker would have qualified as a great “set it and forget it” stock.
I’m bringing up Coca-Cola because recently, I saw some folks on Twitter saying the stock only delivered returns of 3% over the past 22 years. Initially, I didn’t believe it. Sure enough, it’s true. Worse yet, an investor that bought Coca-Cola in 1998 would have been down 50% a decade later and needed 15 years just to get back to even. That’s not best long-term stock status.
Good news is there are some names out there today that could be sound set it and forget ideas. Here are a few to consider.
Best Long-Term Stocks: Microsoft (MSFT)
By constructing this list in 2020, it’s almost impossible to leave Microsoft off and not simply because this is the largest domestic company by market capitalization. The company is firing on all cylinders today. And, while MSFT stock is up 49% over the past year, the name is buoyed by an array of positive fundamental factors.
First, a brief history lesson. Microsoft is 45 years old and went public in 1986. At a time when so many investors are smitten with shiny new objects, those factoids could be construed as strikes against Microsoft. Actually, the opposite is true because this middle-aged company is showing it’s adaptable and has levers for growth.
Microsoft is the second-largest cloud computing company, an impressive feat when considering the company didn’t even enter that business until 2020. Today, the Azure unit is one of the fastest-growing cloud computing entities on the market, confirming Microsoft can enter a competition late and still scale its way to dominance.
Adding to the case for Microsoft as one of the best long-term ideas is adaptability nurtured under the stewardship of CEO Satya Nadella. For example, core products such as Microsoft Office 365 used to be sold on a one-off basis. Now, Microsoft runs a more lucrative subscription model. This makes revenue visibility easier to ascertain – a favorable trait for long-term investors.
The combination of strong leadership, a fortress balance sheet and leadership in some trends that are becoming secular tailwinds make MSFT stock an ideal long-term holding for investors of varying demographics and risk tolerances.
Mastercard (MA)
Like Microsoft, Mastercard is classified as a technology stock, though investors often view it through a financial services lens. Put those two concepts together and you’ve got fintech, as known as the way of accessing growth in the financial services arena.
There are more nimble, growthier fintech names than Mastercard to consider, such as PayPal (NASDAQ:PYPL) and Square (NYSE:SQ). That pair is positioned for long-term success, too. Mastercard is included here because it’s less volatile than those fintech names, meaning its drawdowns over long holding periods should be less severe.
Obviously, a big part of the long-term fintech thesis is the move away from cash to card and digital payments, a trend Mastercard stands to benefit from. Importantly, cards only recently surpassed cash as the world’s primary payment option. This indicates the cashless trend is still in its early innings.
An important feather in the cap of Mastercard is that, like other beloved companies in other industries, it’s able to leverage the network effect. This is a fancy way of saying Mastercard is able to effectively monetize users even though those customers aren’t directly paying the company.
“Payment networks such as Mastercard benefit, unsurprisingly, from a network effect,” notes Morningstar. “The more consumers that are plugged into a payment network, the more attractive that payment network becomes for merchants, which, in turn, makes the network more convenient for consumers and so on.”
Johnson & Johnson (JNJ)
Johnson & Johnson is the oldest and sleepiest of the stocks highlighted here and it’s far from glamorous relative to other healthcare names. Those aren’t knocks on JNJ and those traits don’t mean this stock will succumb to the aforementioned woes of Coca-Cola. Plus, JNJ has some potential for excitement due to its participation in the Covid-19 vaccine race.
JNJ isn’t a growth biotechnology stock. It is able to source growth through its medical devices division, which puts the company at the corner of one of the healthcare sector’s more compelling growth segments.
Owing in large part to an aging population, “the United States remains the largest medical device market in the world: $156 billion (40 percent of the global medical device market in 2017). By 2023, it is expected to grow to $208 billion,” according to SelectUSA.
JNJ is able to take some of the sting out of the pitfalls associated with the pharmaceuticals business, including patent cliffs and failed trails. The company’s strengths include its consumer products business, strong balance sheet and a dividend increase streak that spans multiple decades.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.