Buy and hold forever stocks are the holy grail of investors. Buy the company one time and sit and watch as the company works their magic through thick and thin to roll ever higher. Think buying Coca-Cola in 1922 where a $21 investment then would be worth over $9 million today if all dividends were reinvested. To be a true buy and hold forever stock it needs to be a market leader with an ability to react to changing markets, find new markets and at time create new markets. I looked at five companies for their ability to negotiate markets for ever higher growth to see which ones should give you the confidence to buy now and keep for several decades.
First is the Internet phenomenon turned titan Google (GOOG, Financial) which has a $155 billion market capitalization and a massive share price of over $600 within its 52-week trading range of $473.02-$670.25. Its reported earnings per share is $31.25 for a price to earnings ratio of 19.41. Google has emerged as the winner of the search engine wars and with its Android platform it is becoming a major player in the smart phone market. It is also reaching its tentacles into China and other emerging economies. Google has shown an adaptability you want in a buy and forget stock. The negative here is the high stock valuation. A stock split will increase shareholder value and unlike traditional buy and forget stocks Google pays no dividend. That aside I expect Google to grow reliably for years to come.
The venerable IBM (IBM, Financial) has a share price north of $190 and a market capitalization of $227 billion. It has a 52-week trading range of $151.71-$194.90. Unlike Google, IBM pays a dividend which breaks down to a $1.56 yield. Earnings per share are $13.12 for the trailing 12 months which calculates to a P/E ratio of 14.69. IBM has gone from making old-time cash registers to copy machines and now is a heavy player in global Information Technology. Most importantly, IBM has steadily raised its dividend every year for the past 16 years, including an additional 15% in 2011. If it could raise its dividend during the worst of the Great Recession, it has the reliability to make you sleep well at night and I consider it a prime buy and forget for these properties.
CISCO Systems (CSCO, Financial) the $108 billion market cap network technology force has a recent price near $20 towards the higher end of its $13.30-$20.49 52-week trading range. It lists its earnings per share as $1.28 for a price to earnings ratio of 15.80 which gives it an attractive P/E growth ratio of 0.777, the only stock below 1.0. It now pays a $0.24 annualized dividend that produces a 1.21% yield. Cisco is rated low by the market now because the company has a 60% strangle hold on the router market and no one, including management at CISCO, seems to know where it goes from here. It appears that management has decided to transform itself from an expanding tech company aka Google and switch to a more staid dividend player. For buy and forget investors that is great, because CISCO is a cash flow monster and can easily finance additional growth along with ever increasing dividends for years to come.
Another older entry into the technology fray is Intel Corporation (INTC, Financial) with a 52-week trading range of $19.96-$27, a recent share price near $27 and a market capitalization on $136 billion. Earnings per share for the trailing 12 months are $2.39 which gives it the lowest P/E ratio of the group of 11.23. Like IBM, Intel is a dividend king and it has reliably maintained and raised its dividend, most likely to the tune of 15% in 2011. Not only is it a reliable earnings grower, it is trading at a discount compared to the other companies on this screen.
No such analysis would be complete without casting the eye over Apple (AAPL, Financial) whose $466 billion market capitalization off of a recent share price of around $502, near the top of its 52-week trading range of $310.50-$509.56. In fact, the company briefly popped above a market capitalization of half a trillion dollars in early February when it ran up near $100 a share inside of two weeks. Earnings per share lists at $35.11 for a price to earnings ratio of 14.32 and a price to earnings growth ratio of 1.223. It has no debt and a $9.8 billion dollar war chest.
Apple is the definition of the type of company you want to hold on to forever — having re-envisaged itself from computer maker to personal electronics superstar and now becoming a major player in personal communications. The fly in the ointment here is the 2011 passing of its co-founder, I would argue the soul of the company, Steve Jobs. Can the present management continue Jobs' fanaticism for quality, innovation and design which has brought Apple to its current pinnacle? For me the jury is out, since I remember when Jobs left the company due to a boardroom revolt and Apple quickly fell apart before Jobs returned to much hoopla as the savior. I am watching for mid-2012 when Apple's hyped i-TV is released on the market place. If the roll-out is an Apple-like success, I will surrender my skepticism and push the company to the front of the heap for good. Until then I have a few too many reservations on Apple's future management to slide the stock into my buy and forget category.
In the final analysis, a true buy and forget stock is one that has little uncertainty. All five companies in this screen have great management and shown a strong ability to negotiate steady growth over time over a variety of market. For a classic Buy and Forget Stock the easy choice is IBM, whose steadily increasing dividend and strong market position looks healthy and predictable. However I believe Google long term will be the best performer on a reliable basis and is the best Buy and Forget stock of this group.
First is the Internet phenomenon turned titan Google (GOOG, Financial) which has a $155 billion market capitalization and a massive share price of over $600 within its 52-week trading range of $473.02-$670.25. Its reported earnings per share is $31.25 for a price to earnings ratio of 19.41. Google has emerged as the winner of the search engine wars and with its Android platform it is becoming a major player in the smart phone market. It is also reaching its tentacles into China and other emerging economies. Google has shown an adaptability you want in a buy and forget stock. The negative here is the high stock valuation. A stock split will increase shareholder value and unlike traditional buy and forget stocks Google pays no dividend. That aside I expect Google to grow reliably for years to come.
The venerable IBM (IBM, Financial) has a share price north of $190 and a market capitalization of $227 billion. It has a 52-week trading range of $151.71-$194.90. Unlike Google, IBM pays a dividend which breaks down to a $1.56 yield. Earnings per share are $13.12 for the trailing 12 months which calculates to a P/E ratio of 14.69. IBM has gone from making old-time cash registers to copy machines and now is a heavy player in global Information Technology. Most importantly, IBM has steadily raised its dividend every year for the past 16 years, including an additional 15% in 2011. If it could raise its dividend during the worst of the Great Recession, it has the reliability to make you sleep well at night and I consider it a prime buy and forget for these properties.
CISCO Systems (CSCO, Financial) the $108 billion market cap network technology force has a recent price near $20 towards the higher end of its $13.30-$20.49 52-week trading range. It lists its earnings per share as $1.28 for a price to earnings ratio of 15.80 which gives it an attractive P/E growth ratio of 0.777, the only stock below 1.0. It now pays a $0.24 annualized dividend that produces a 1.21% yield. Cisco is rated low by the market now because the company has a 60% strangle hold on the router market and no one, including management at CISCO, seems to know where it goes from here. It appears that management has decided to transform itself from an expanding tech company aka Google and switch to a more staid dividend player. For buy and forget investors that is great, because CISCO is a cash flow monster and can easily finance additional growth along with ever increasing dividends for years to come.
Another older entry into the technology fray is Intel Corporation (INTC, Financial) with a 52-week trading range of $19.96-$27, a recent share price near $27 and a market capitalization on $136 billion. Earnings per share for the trailing 12 months are $2.39 which gives it the lowest P/E ratio of the group of 11.23. Like IBM, Intel is a dividend king and it has reliably maintained and raised its dividend, most likely to the tune of 15% in 2011. Not only is it a reliable earnings grower, it is trading at a discount compared to the other companies on this screen.
No such analysis would be complete without casting the eye over Apple (AAPL, Financial) whose $466 billion market capitalization off of a recent share price of around $502, near the top of its 52-week trading range of $310.50-$509.56. In fact, the company briefly popped above a market capitalization of half a trillion dollars in early February when it ran up near $100 a share inside of two weeks. Earnings per share lists at $35.11 for a price to earnings ratio of 14.32 and a price to earnings growth ratio of 1.223. It has no debt and a $9.8 billion dollar war chest.
Apple is the definition of the type of company you want to hold on to forever — having re-envisaged itself from computer maker to personal electronics superstar and now becoming a major player in personal communications. The fly in the ointment here is the 2011 passing of its co-founder, I would argue the soul of the company, Steve Jobs. Can the present management continue Jobs' fanaticism for quality, innovation and design which has brought Apple to its current pinnacle? For me the jury is out, since I remember when Jobs left the company due to a boardroom revolt and Apple quickly fell apart before Jobs returned to much hoopla as the savior. I am watching for mid-2012 when Apple's hyped i-TV is released on the market place. If the roll-out is an Apple-like success, I will surrender my skepticism and push the company to the front of the heap for good. Until then I have a few too many reservations on Apple's future management to slide the stock into my buy and forget category.
In the final analysis, a true buy and forget stock is one that has little uncertainty. All five companies in this screen have great management and shown a strong ability to negotiate steady growth over time over a variety of market. For a classic Buy and Forget Stock the easy choice is IBM, whose steadily increasing dividend and strong market position looks healthy and predictable. However I believe Google long term will be the best performer on a reliable basis and is the best Buy and Forget stock of this group.
