The ultimate buy and hold stocks portfolio - if you are brave enough
While global stock markets are trading at all-time highs, this group of stocks could be one to eye for the future
Private investors can be an impatient bunch, restlessly checking their portfolios every day, repeatedly buying and selling as they seek to make a fast return.
Instead, it might be wiser to take things a bit easier by adopting what is often called a long-term “buy and hold” strategy for equities.
This means taking a position in a steady, established company that pays generous dividends, and holding its stock for year after year. It saves you a lot of dashing around, as well as transaction charges from constantly trading shares.
The following 10 big global stocks could all fit the bill but you want might to dip your toe in rather gently than rush to buy them today. Global stock markets are currently trading at all-time highs, and this increases the danger of a sudden correction.
Like many analysts, Jordan Hiscott, the chief trader at Ayondo Markets, fears share prices are now overvalued. “Valuations don’t seem to take into account the fractious nature of geopolitics, with aggressive rhetoric between the United States and North Korea, and the Catalonian independence referendum.”
Bankers such as the US Federal Reserve are now reversing interest rate cuts and monetary stimulus, which will also threaten markets.
Your patience will be rewarded if stock markets do dip, as you may then be able to buy shares in the following companies at a discount. Then all you have to do is hold them for years, while occasionally checking on how they are faring.
Russ Mould, investment director at online platform AJ Bell, picks out AIA Group, Asia’s largest independent insurance company, as one of his favourite long-term buy and hold stocks.
Established in Shanghai in 1919, AIA has a market cap of US$93 billion and millions of customers in 18 countries across the Asia Pacific region. When it registered on the Hong Kong Stock Exchange in 2010, it was the third largest global IPO of all time.
The year 2017 has been good for the stock, with shares up
36 per cent year-to-date, according to Bloomberg. It currently yields 1.49 per cent.
Mr Mould says: “AIA is a great long-term play on the rising affluence of the Chinese middle class, who are buying financial services products in ever greater numbers.”
The shares trade in Hong Kong and you can also buy them at the New York Stock Exchange by purchasing its American Depository Receipts (ADRs) which allow investors to invest in foreign listed companies.
Mr Mould also tips Danish pharmaceutical company Novo Nordisk, a global healthcare company with more than 90 years of experience in diabetes care.
Diabetes is soaring, from 108 million cases in 1980 to more than 422 million in 2014, according to the World Health Organisation, with the trend expected to accelerate as more countries adopt unhealthy Western lifestyles. Mr Mould says the $122bn company has been knocked by a feared US clampdown on drug prices and gathering competition from generic rivals. “However, its shares are much cheaper as a result and news flow on new product trials is gathering nicely.”
Operating margins and cash flow are still excellent and the firm has the stability to
weather any stock market storm, he adds. Its share price is up 18 per cent in the last year, and the stock yields an income of 1.93 per cent.
Novo Nordisk’s shares are listed on Nasdaq Copenhagen and on the New York Stock Exchange as ADRs.
Johnson & Johnson
Lee Wild, head of equity strategy at website Interactive Investor, picks out US-listed global healthcare company Johnson & Johnson, which he describes as a household name that never fails to deliver. “Almost all of us have used Johnson’s skincare products, baby lotions and medicines, which sell steadily both during an economic boom or recession.”
The firm also has a thriving medical devices division and a pipeline of new drug treatments. “Recent third quarter results beat expectations and the company has raised guidance for the full-year,” Mr Wild adds.
Johnson & Johnson, which has a market capitalisation of $377bn, currently yields 2.7 per cent, and its share price is up 15 per cent in the past year. Mr Wild says: “Resilience through the economic cycle, strong pricing power and 55 years of consecutive dividend growth make Johnson & Johnson shares one for the bottom drawer.”
Mr Wild also picks iconic brand and media major Walt Disney. “Its film studios, which now include Pixar, Marvel Studios and Lucasfilm, are behind some of the biggest ever blockbuster movies. Disney theme parks recently posted massive third-quarter revenues of $4.89bn, up almost 12 per cent in a year.
Disney’s ESPN TV network is struggling currently but, as the dominant US sports broadcaster, it can charge higher subscriber fees which pay for further valuable programming rights, Mr Wild adds.
There’s lots to like about this $155bn company. “It is seeing theme park growth in the far east and potential for new over-the-top streaming services from both ESPN and Disney. The company’s mass appeal, near double-digit annual earnings growth and significant free cash flow underpin the long-term investment case.”
Mr Wild’s final tip is US medical devices company ResMed, which makes masks and machines to treat breathing disorders.
The group should benefit from modern threats such as obesity, pollution and ageing populations. “These issues, along with hypertension and diabetes, are closely correlated to growth in sleep apnoea and chronic obstructive pulmonary disease, which is the third leading cause of death in the US.”
ResMed is working on new products to tackle sleep apnoea and health problems caused by air pollution. “It’s a global problem, especially in China, India and other fast-growing emerging economies,” says Mr Wild. This New York listed stock is up 22 per cent in the past year and yields 1.88 per cent. “ResMed is a high-quality operator that is likely to grow rapidly for years to come,” Mr Wild adds.
Reckitt Benckiser and Unilever
Laith Khalaf, senior analyst at wealth advisers Hargreaves Lansdown, says you should never completely forget a stock after you have bought it. “Even if you are picking quality companies for the long term it still pays to periodically check they are not veering off course.”
He picks two London-listed companies that have a massive global reach, stretching into kitchens and bathrooms all over the world.
“Reckitt Benckiser and Unilever are both consumer goods giants with robust earnings, strong brands and market pricing power,” he says.
Familiar Reckitt Benckiser brands include Scholl, Finish, Vanish and Cillit Bang, Mr Khalaf says. “The company puts huge weight behind its brands each year, with a marketing budget of over $1.3bn a year. Unilever brands include Domestos, Dove, Knorr, Hellman’s, Magnum and Marmite.
Both companies have offered steady long-term share price growth with a rising yield, currently paying income of 2.17 per cent and 2.48 per cent, respectively.
London-listed power and gas company National Grid is one of the largest investor-owned energy companies in the world, covering Massachusetts, New York, Rhode Island and the United Kingdom. The $42bn company is heavily regulated but this gives it a relatively secure revenue and profit outlook, and it also pays an attractive dividend.
Graham Spooner, investment research analyst at share.com, says it is a consistent dividend payer that currently yields an attractive 4.8 per cent. “Furthermore, the dividend is due to grow at least in line with inflation. We have long been fans of the group for income seekers and recent sterling weakness only strengthens this by boosting the value of its dollar earnings.”
Online shopping major Amazon’s share price crashed to around $7 after the financial crisis; today it trades at close
The $545bn global firm has been laying waste to its retail rivals, with Toys R Us the latest to file for bankruptcy after failing to compete with web-based shopping. Grocery retailers could be next, as Amazon ramps up fresh food deliveries following its purchase of Whole Foods. Amazon’s share price is up almost 20 per cent in the past 12 months, but there is no dividend.
Geir Lode, head of global equities at Hermes Investment Management, believes this “spectacular behemoth” has a bright outlook. “Technology stocks like this one look vastly overpriced, but its growth prospects represent a valuable investment opportunity.”
The “hyper-growth company” is changing the way we live. “Amazon’s management has exhibited superior execution skills, investing in new business segments and often defeating competition from new contenders,” Mr Lode says.
Amazon offers expected annual revenue growth of roughly 20 per cent, a healthy balance sheet, and phenomenal market sentiment, he concludes.
Clem Chambers, the founder of stocks and shares website Advfn.com, makes a controversial choice for his buy and hold stock: electric car maker Tesla.
He counts himself among those who believe that Tesla founder Elon Musk is a visionary of genius. “Today, Tesla is worth $51bn. One day, it will be worth $200bn.”
A growing number believe the risks now outweigh the potential rewards, for example, investor Jim Chanos recently claimed the company was “structurally unprofitable” and had borrowed far too much money. Tesla has burnt through billions pursuing Mr Musk’s vision, with the company reporting a record quarterly loss of $619.4m on November 1. The stock took a further hit when Mr Musk admitted that Tesla’s new mass-market Model 3 was “deep in production hell” due to factory-line glitches.
Mr Chambers nonetheless believes Mr Musk will change the world. A large number of short sellers are equally convinced he will fail. This one could go either way. Approach with caution.
Updated: November 12, 2017 07:09 PM