Being here, you obviously understand the importance of buying and holding stocks for years. So do we. That’s why we set out to find the best companies to hold stock in for the long term.
The issue with this query is defining “best” in the context of long-term holding.
If you do a bit of digging, you will find plenty of lists with blue chip stocks. Surely, you can’t go wrong with huge companies with great reputations. But nothing beats an immaculate balance sheet and income statement.
So, here’s how we tackled this; we found companies that:
- Are S&P 500 components
- Don’t have alarmingly high debt relative to equity (D/E < 1.5)
- Have strong liquidity (current ratio > 1.5, interest coverage > 10)
- Had good recent performance (ROE > 10%, YoY sales revenue growth > 8%, YoY EPS growth > 30%)
- Are good value relative to EPS and book value (P/E < 15, P/B < 3.5)
And here’s what we came up with…
1. Micron Technology (MU)
Micron Technology, founded in 1978 and headquartered in Boise, Idaho, started with a focus on the design and manufacturing of DRAMs for PCs. Later it expanded its business into the NAND flash memory market.
Now, its DRAM and NAND products are tailored to PCs, smartphones, game consoles, data centers, automotives, etc.
The firm purchased Elpida and Inotera in 2013 and 2016, respectively. With these two acquisitions, it managed to increase its DRAM scale.
Based on the 31 analysts’ median price target of $110 and the stock’s trading price, MU now has an 84% upside.
The highest price target is $165 and represents a 176% upside and the lowest is $70 and represents a 17.2% upside.
Micron Technology is a great pick for long-term holding for multiple reasons.
First of all, it has a very conservative capital structure; its debt to equity ratio is just 0.33. For such a huge corporation, this is not often encountered. No doubt, the firm is capable of raising funds for any need, be it growing its operations or retiring high-interest notes.
Second, its liquidity is exceptionally strong. Its current assets were last reported to be 3 times its current liabilities. Further, it reported earnings before interest as 34.5 times its interest expense. With this kind of liquidity, the firm is far from insolvency.
As for performance, the company generated a good return on its equity (13%). It also grew its revenue and EPS by 29.2% and 116.9%, respectively (YoY). For Micron’s size, this kind of performance is rare and, therefore, a positive sign.
Now, what’s really impressive here is the price. Micron’s price is trading at 11.6 times its EPS and 1.5 times its book value. If there is a good time to start investing in this company, it is probably now.
Source: MU Annual Report
2. Tyson Foods (TSN)
Tyson Foods, founded in 1935 and headquartered in Springdale, Arkansas, is the largest producer of processed chicken and beef in the US.
Further, it’s a large producer of protein-based products, operating under the following brands:
- Jimmy Dean,
- Hillshire Farm,
- Ball Park,
- Sara Lee,
- State Fair,
- Raised & Rooted,
- And others…
81% of the firm’s products are sold through various US channels like retailers, food service and industrial companies.
Further, 11% of Tyson’s revenue comes from exports to Mexico, Canada, China, Europe, Brazil, and Japan.
Based on the 12 analysts’ median price target of $100 and the stock’s trading price, TSN now has a 17.8% upside.
The highest price target is $115 which represents a 35.5% upside and the lowest price target is $85 which represents a 0.14% upside.
We were truly surprised to find out that this market leader has attractive fundamentals.
Starting from its capital structure, its debt is equal to its equity (D/E: 1x), well under our requirement.
As for liquidity, the company’s latest 10-K indicates a current ratio of 1.5x and an interest coverage of 10.2x. These ratios barely meet our criteria, but this is Tyson Foods we’re talking about here, so they’re still good.
We were also pleased to find out that the company can still grow its revenue (YoY growth: 8.9%) and its EPS (YoY growth: 47.9%). Tyson Foods also generated a surprisingly high return on its equity (17%).
But the best thing about this stock is its current price. It is now trading at just 10.2 times the EPS and 1.7 times the book value. If you get in now, we think it’s safe to say that Tyson Foods is a long-term pick.
Source: TSN Annual Report
3. Nucor (NUE)
Nucor, incorporated in 1958 and based in Charlotte, North Carolina, is a steel manufacturer. It also creates reduced iron to use in its steel mills.
The firm’s clients are mainly international trading and sales companies that purchase and sell steel products. Its business segments are:
- Steel Mills
- Steel Products
- Raw Materials
Most of Nucor’s revenue is derived from its Steel Mills segment.
Based on the 10 analysts’ median price target of $129 and the stock’s trading price, NUE now has an 11.1% upside.
The highest price target is $180 which suggests a 55% upside and the lowest is $105 which suggests a 9.5% downside.
Nucor may not share the size of the above-mentioned companies, but it is a great pick for long-term holding.
First, it has a conservative capital structure with liabilities being 0.76 times its equity.
It also has outstandingly strong liquidity. Its current assets were last reported as 2.4 times its current liabilities. Further, its income before interest was 170 times its interest expense.
But the firm’s performance looks even better. It generated a 48% return on its equity and grew revenue and EPS by 81% and 881%, respectively!
Here are more unusual numbers… NUE is currently trading at only 5 times its earnings per share and 3 times its book value.
All in all, this can be more than a long-term pick. It could be the growth stock that your portfolio needs to give you more than the returns you expect in the short term.
Source: NUE Annual Report
4. PulteGroup (PHM)
PulteGroup, founded in 1950 and headquartered in Atlanta, Georgia, is one of the largest US homebuilders. It operates in 40 markets, across 23 states.
The company primarily builds single-family detached homes, deriving 85% of its unit sales from this segment. It also offers related products to entry-level, active-adult, and move-up buyers.
Further, PulteGroup provides homebuyers with title agency and mortgage financing services via its financial services segment.
Based on the 13 analysts’ median price target of $55 and the stock’s trading price, PHM now has a 38.6% upside.
The highest price target is $76 which suggests a 91.5% upside and the lowest is $46 which suggests a 15.9% upside.
Yet another market leader with a lot of good numbers.
First, PulteGroup has a D/E ratio of 0.8x, which is significantly lower than our requirement.
As for liquidity, the numbers are pleasantly unnatural. The firm’s current ratio is 3.7x and its interest coverage is 5,000x thanks to its incredibly low interest expense.
Profitability looks good for this company too. Its return on equity was 26% and it had a YoY revenue and EPS growth of 26.4% and 43.4%, respectively.
This is also a great time to buy the stock because its P/E ratio is only 5.3x and its P/B is 1.3x. The price is simply too low for such an immaculate balance sheet and income statement.
Source: PHM Annual Report
What About Growth though?
And now you know what the best companies to hold stock in are. With the information we have available about these stocks right now, you can safely buy and hold them for years.
But what are you doing about long-term growth? No doubt, the above-mentioned picks can give you great long-term returns if the trend continues. However, if your portfolio includes a couple of high-growth stocks, the growth prospects can look much better.
To help with this, we created a free newsletter that gives you 2 growth stock picks per month.
To get an idea, 3 of our last stock picks had a combined return of 382%! Further, 90% of all of our growth stock ideas have been beating the market for the last 3 to 4 years.