Inventors are thinking about where to place their money, especially stocks. On a personal basis, you may have saved some money beyond your needs for an emergency fund.
What should you do with this money? You can pay down debt; it is always prudent and easy to do.
In addition, this action will result in higher net worth since you are subtracting from the debt part of the equation. Alternatively, you can invest in stocks. However, the question remains, which are the best long-term stocks to own today?
This question is not an easy question to answer.
The best long-term stocks the last year are different than the ones to buy this year. Economies change, causing changes in the stock market. Companies change too; yesterday’s high-growth and must own company may no longer be one today.
For instance, in the 1990s, General Electric (GE) was a growth company and the most valuable company in the world by market capitalization for several years. Today, the company is much further down the list at number 152. GE was a great long-term stock years ago but perhaps not as desirable today. So, what are the best long-term stocks to own today?
What are Long-Term Stocks
Before we answer the question, let us first define long-term stocks. In the minds of many investors, long-term stocks can stand the test of time.
This statement means the companies considered as long-term stocks can survive different economic conditions, severe bear markets, and competition.
For example, Microsoft (MSFT) is an example of a long-term stock. The company survived the dot-com crash, the Great Recession, and the COVID-19 pandemic and continues to grow. Moreover, Microsoft is performing very well during the pandemic since much of its business can be done online and remotely.
Below we discuss three of the best long-term stocks to own today.
3 Best Long-Term Stocks to Own Today
Microsoft
The first company on the list of best long-term stocks is Microsoft. The company has survived adverse economic conditions and continues growing with time. The company’s major brands, products, and services include MS Office, Windows, LinkedIn, Bing, Xbox, Outlook, Azure, Github, etc.
Most businesses and consumers likely use one or more products from Microsoft. For example, many workers have profiles on LinkedIn, use Windows as their laptop’s operating system, and create work products on MS Office.
Microsoft is the second-largest company by market capitalization at over $2.4 trillion behind Apple (APPL). Microsoft continues to grow revenue and earnings due to the strength of its product portfolio. In addition, the transition to the cloud leveraging Azure is driving growth across the company. For example, total revenue has roughly doubled since the current CEO, Satya Nadella, was installed in 2014.
In turn, this has caused total returns to shareholders to rise. In the past ten years, total returns were 1,439%, and in the trailing 5-years, they were 459%. In the past year, the stock has been up ~47.6%, a superb value considering the size of Microsoft.
For investors interested in dividends, the company pays a growing dividend. The quarterly dividend rate is $0.62 per share, making an annual rate of $2.48 per share. However, the dividend yield is low at 0.77%. Microsoft is not a stock that will produce a high passive income stream, but the dividend safety is excellent. In addition, the company has a triple-AAA-rated balance sheet making it one of only two rated ‘AAA.’
Microsoft is still a growth stock after more than two decades. The company has found success with its business model and products and grows organically. Additionally, the company is a consolidator in the tech industry, periodically buying smaller rivals.
Hence, the many advantages of Microsoft make it a penultimate long-term stock. However, a negative about Microsoft is its lofty valuation with a price-to-earnings (P/E) ratio of about 35.2, and investors may want to be patient here.
- Market Capitalization: $2.43 trillion
- Stock Price: $319.02
- Dividend Yield: 0.77%
- P/E Ratio: 35.2
Apple
Apple is the second stock on the list of best long-term stocks. The company is another tech giant, but it continues to grow faster than many competitors. As a result, there are few investors unfamiliar with Apple. The company has many brands, products, and services essential to consumers and many businesses.
Major products include the iPhone, iPad, Macbook, AirPods, Apple Watch, Beats, and Apple TV. The company’s services include Apple Music, AppleArcade, Apple TV+, Apple Card, and Apple Pay. Reportedly, the tech giant is working on an AR device, a car, and foldable iPhones.
Apple is the largest company by market capitalization globally and closing in on a $3 trillion valuation. No company is as big as Apple. Even Microsoft, which is number two, trails Apple by almost $400 billion, roughly the entire market capitalization of Home Depot (HD). For perspective, Apple is around three times as large as Tesla (TSLA) and Facebook (FB).
Apple continues to grow due to the strength of its product portfolio. Incremental improvements and technological obsolescence drive sales. Apple adds features, speed, resolution, etc., to its products each year. In addition, electronics wear out and are superseded by new technology, and thus after about four or five years, they must be replaced.
Apple’s success has driven revenue and earnings growth at a pace few companies can match. Revenue has more than tripled in the past decade and shows no signs of slowing. As a result, the stock’s total return is 1,367% in the trailing 10-years and 527.1% in the past 5-years.
Apple is also a dividend stock after restarting the dividend in 2012. Since then, the dividend has grown at a nearly 10% compound annual growth rate (CAGR). The current quarterly dividend rate is $0.22 per share, giving an annualized rate of $0.88 per share. The dividend yield is low at 0.51%, but the dividend safety is excellent, reinforced by Apple’s significant cash position on its balance sheet.
Apple is still growing and moving into new markets. The success of the iPhone has allowed Apple to use the cash flow to enter adjacent markets. In addition, the Apple brand is one of the most well-known worldwide. One negative is that Apple is valued at a P/E ratio of 30.0. However, Apple’s strengths make it an excellent long-term stock to own.
- Market Capitalization: $2.81 trillion
- Stock Price: $169.82
- Dividend Yield: 0.51%
- P/E Ratio: 30.0
Visa
The next stock on this list of best long-term stocks is Visa (V), the payment processor. Visa needs little introduction to most consumers and investors. Most people likely have at least one Visa card in their wallet or purse. Visa’s core technology is its transaction processing network known as VisaNet. The company authorizes, clears, and settles payment transactions between consumers and merchants through VisaNet. In addition, Visa licenses its name to allow banks to issue branded credit and debit cards.
In the competition of Visa vs. Mastercard stock, it is challenging to state which company is preferred. They are both similar, but Visa is much larger than the smaller Mastercard (MA). Visa has more than 50% market share and processed $9+ trillion transactions in 2020.
Mastercard has a 29% market share and processed $4.8+ trillion in transactions in 2020. In any case, the two companies have an oligopoly with approximately 80% combined market share. As a result, a new entrant would have difficulty making headway.
Visa continues to grow through a network effect. Merchants want to work with Visa since it has the most issued cards. Consumers want to carry a Visa card since it is accepted at the most retail locations. This network effect has allowed Visa to grow rapidly since its 2008 IPO.
Revenue is about 2.5 times higher than ten years ago and continues to rise. However, recessions slow revenue growth and the company and lower revenue in fiscal 2020 than fiscal 2019. Revenue has bounced back in 2021 and is higher than pre-pandemic levels.
Visa’s stock price has benefitted from the top-line growth. The total return was 832.9% in the past decade and 179.3% in the trailing 5-years.
Additionally, Visa is a dividend stock. The quarterly dividend rate is $0.375 per share, giving an annualized rate of $1.50 per share. The dividend growth rate is double-digits at about 25% CAGR in the past decade and 20% CAGR in the trailing 5-years.
Few companies can match this dividend growth rate. However, like the other stocks on this list, the dividend yield is low at 0.71%, but dividend safety is excellent.
Visa will continue to grow, especially internationally. More and more payments are becoming digital as consumers and businesses forego cash. This transition will benefit Visa. This fact, combined with excellent brand awareness, makes Visa an outstanding long-term stock to own. Visa is usually overvalued, but the stock price has come down. Still, the P/E ratio is about 30.1, and investors may want to be patient.
- Market Capitalization: $446.8 billion
- Stock Price: $208.74
- Dividend Yield: 0.71%
- P/E Ratio: 30.1
Disclosure: Members of Invested Wallet team are long some of the stocks discussed.
Disclaimer: The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.