Among Warren Buffett’s favorite aphorisms is “our favorite holding period is forever.” While not even the Oracle of Omaha abides by that rule, he uses that as a guideline for maintaining a buy-and-hold investor mindset.
You should never invest money you can’t afford to lose or that you might need in the next three or five years, so holding onto stocks for the long term is the proper way to approach investing. And Procter & Gamble (NYSE:PG), Snowflake (NYSE:SNOW), Lovesac (NASDAQ:LOVE), are three stocks in particular you will want to own for the next decade and beyond.
A dependable earner and dividend payer
Berkshire obtained its once-considerable stake in the company through the back door. It was a major shareholder in shaving razor mainstay Gillette, which was bought by Procter & Gamble in 2005.
Buffett’s holding converted to a Procter & Gamble stake; subsequently Berkshire exchanged nearly all of that considerable holding to acquire the company’s Duracell battery business. Berkshire still maintains a (relatively) vestigial Procter & Gamble stake of 315,400 shares, making it one of its smaller equity holdings.
But the fact that Buffett is holding on at all says something about the quality of the company. Its products can be found in nearly every corner of most American homes; in addition to Gillette Procter & Gamble also owns Pampers and Luvs diapers, Tide laundry detergent, Bounty paper towels, Head & Shoulders specialty shampoo, and a great many other familiar household brands.
While that sounds like a big lineup, Procter & Gamble has actually spent much time and effort in the recent past whittling down its product list to the stronger and more profitable goods (like, for example, Gillette).
This has put it on a growth path over the past few years, which juiced results even before the pantry- and medicine cabinet-stuffing times of the early coronavirus pandemic. From the company’s fiscal 2017 to 2020, its top line expanded from just over $65 billion to nearly $71 billion, with net income topping out in the latter year at more than $13 billion — not bad for a company with a host of mature business lines.
More recently, Procter & Gamble has proven that it can adjust to the world’s new post-hoarding reality as we (hopefully) start to emerge from the pandemic. The company’s fourth-quarter sales growth slowed, as expected, but it still managed to squeeze out a 4% expansion on a year-over-year basis. In fact, according to management, all ten of its product categories either maintained or grew their organic sales over that stretch of time.
Zooming out on the entirety of fiscal 2021, Procter & Gamble’s ever-robust free cash flow rose by nearly 9%, which these days is nearly double the amount needed to cover the company’s dividend payouts. So it’s almost a certainty that the company will extend its hard-to-beat streak of 65 years of raising that payout annually, and thus maintain its status as one of the market’s precious few Dividend Kings.
Procter & Gamble is one of the best buy-and-hold stocks around. It’s still managing to grow admirably despite its size, it pays a continuously rising dividend, and its products will never go out of style. No wonder Buffett continues to keep it in the Berkshire portfolio; it should be in yours, too.
This Buffett stock is breaking the mold
Keith Noonan (Snowflake): For a company that’s already in the Berkshire Hathaway portfolio, Snowflake may be about as far away from the traditional Warren Buffett stock as you can get. For starters, the cloud data services company operates in a complex, technical industry. With a market capitalization of roughly $96 billion and valued at approximately 84 times this year’s expected sales, Snowflake also has a highly growth-dependent valuation.
Despite some admittedly atypical characteristics for a Berkshire Hathaway portfolio holding, the stock looks like a worthwhile play for risk-tolerant investors seeking big gains over the long term. The ability to access and analyze valuable data has never been more central to business success, and it will play a rising role in determining which companies thrive this century. This trend was likely a core factor in Berkshire’s decision to invest in Snowflake at its initial public offering.
Snowflake makes it easy for government and enterprise customers to draw and analyze data from multiple sources that would otherwise be separate and inaccessible through the same platform. Between Amazon Web Services, Microsoft Azure, and various other cloud infrastructure and platform services, it’s increasingly common for companies to rely on multiple providers that don’t offer easy data sharing. Snowflake’s cloud-based platform fixes this problem and makes it easy for customers to analyze more valuable data and scale in a cost-effective manner.
Berkshire Hathaway has gradually been building positions in future-oriented tech plays that could drive performance through the next decade and beyond. Snowflake has a first-mover position in its corner of the data services industry, and this could help it establish a powerful moat that paves the way to fantastic performance over the long term.
Cuddle up with this furniture maker
Rich Duprey (Lovesac): Buffett might not kick back on one of Lovesac’s modular sectional couches — called a “sactional” — but he could easily be comfortable with having the furniture maker’s stock in his portfolio.
Lovesac is changing the way consumers view furniture, or at least how they buy it, developing an omnichannel presence that fairly evenly delivers sales. E-commerce represents 47% of total revenue with its physical retail presence generating the balance.
What’s unique about a Lovesac sactional is the ability to rearrange the sections into numerous combinations depending upon the space they’re being put in. While not cheap — they start at around $2,600 for two seats and four sides — with over 200 cover options they give consumers an enormous amount of choice to find just the look they want.
That apparently is resonating with consumers as sales last quarter rose 65% from last year and more than double the sales recorded in the same quarter of 2019, proving it’s not just rebounding from the pandemic. In fact, Lovesac prospered during the coronavirus outbreak because it was able to readily return to its e-commerce roots and deliver furniture to customers. It’s a profitable business, too, with the furniture maker reporting profits on both an adjusted basis and according to generally accepted accounting principles (GAAP).
Analysts are forecasting those earnings to keep growing, too, expecting 30% annual compound growth for the next five years, a faster rate than it generated for the last five years.
While the stock has jumped 30% since it reported earnings, Wall Street is still anticipating dramatic growth with price targets above $100 a share, indicating better than 50% growth expected over the next year.
A solid business with a profitable base is just the kind of company Buffett would like and it’s one that should be on your radar, too.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.