Picking stocks to buy and hold requires investors to identify companies with great long-term fundamentals that still offer value. Timing the stock to buy it at a good entry point in its cycle or fairly priced versus its growth potential are both keys. The stocks listed here all fit that profile for investors.
Qualcomm is a great way for investors to play the ongoing growth of mobile technology around the world. The company manufacturers and licenses technology used in mobile devices. It has content in almost every 3G and 4G device sold. The increasing use of smartphones and tablets will continue to generate revenues for Qualcomm well into the future. Smartphone adoption in the developing world will continue to expand and drive long-term revenue growth at the firm. A forecast from Strategy Analytics forecasts smart phone sales of 320 million units in 2014 and 350 million in 2015. Qualcomm has a market share of 59% in the chipsets of smart phones. It is more ideal than companies like Apple (AAPL), Google (GOOG), or Samsung in our view, because it benefits no matter which company wins in smart phones.
Qualcomm has as strong cash position with around $15 per share in excess cash and continues to generate significant FCF. It trades at a discount to big tech peers at 15.6x TTM earnings and 12.7x FY16 EPS.
The housing sector and DIY business continues to slowly improve in the U.S., and housing starts have not rebounded to even normalized levels. With an outlook for sustained long-term improvement in housing, home centers also benefit. In addition, the retail sectors as whole is also improving behind U.S. economic growth and increasing consumer spending. Multiples tend to expand in that environment, and the share price of Lowes should benefit from all these trends.
Lowes also has room to expand margins whereas most retailer are currently trying to defend them. The online push from Amazon (AMZN) is impacting many retailers. However, consumers still shop and buy DIY, hardware, and other core products for Lowes in physical stores. The company is also in the midst of a value improvement initiative that could further help margins.
Internal initiatives at Lowes, its defensible position in retail, and trends in the U.S. economy are all positive. It is a good fit for investors to buy and hold long-term in this environment.
Salesforce.com is the clear leader in its sector in both innovation and market share. Forecasts are for its revenues to continue to grow at 30% per year for the next few years. Gains in its cloud-based products will drive its growth and could generate additional share gains. In addition, it should continue to consolidate its space and make further acquisitions.
The ability of Saleforce.com to continue achieving growth rates of ~30% per year despite its size is impressive. It is the leading SaaS company and is gaining share in enterprise applications. Its large client base in its Foce.com platform also presents the opportunity to upgrade customers to higher margin products as they grow. As Salesforce.com continues to grow over the long-term and beat revenue and cash flow forecasts, the stock price should follow suit.
Social media is here to stay so holding one of the key players for the long-term makes sense. While Facebook (FB) is currently king and making money, threats to its status as king in the long-term do exist. It has uncertainty around growth in its user base and the level of user engagement.
On the other hand, Twitter is increasing the number of active accounts with 284 million users on the service currently. Revenues are doubling every year, and it should start to generate profits. With strong relationships with advertisers and users, Twitter is here to stay. The stock is trading at $37.57, well below its high of close to $70. The valuation is more reasonable at this entry point.
Caterpillar shares had a difficult 2014, rising to $110 in July before a big pullback to its current share price of $83.97. A slowdown in the global economy, especially the developing world and in Europe, has weighed heavily on the shares. The economic outlook negatively impacted both its construction equipment business along with an already softening mining equipment segment.
However, Europe will rebound and the developing world will again start to grow. Both construction activity and raw material consumption will rise as a results which both drive CAT’s business.
Owning CAT in a long-term portfolio provides exposure to global economic growth. It is the best-in-class operator and also has a current dividend yield of 3.3%. The stock trades at 12.4x FY15 EPS, on the low end of its historic range. Earnings should resume growth in 2016, and the share price should follow.