With their stellar historical returns, equities have proven to be the best investment in the long term. By this logic, buying and holding stocks for a long period is a relatively simple, but highly effective, strategy to create wealth. However, when investing for the long haul, investors should focus on diversifying their portfolios, and look for large companies - primarily industry leaders - with growing earnings bases and substantial competitive advantages.
From this perspective, Apple, Nvidia, and Costco are all built to last, and are three great buy-and-hold stocks for the long term. Shares of these companies have consistently outperformed the S&P 500 Index ($SPX) for the past several years. Let’s examine the factors to understand why these are great “buy-and-hold forever” stocks.
Apple
Apple, with its innovative spirit, solid product line (iPhone, iPad, MacBook, and wearables), strong brand equity, and loyal customer base, is a must-have long-term bet. Its ability to consistently innovate enables it to expand its product and customer base, and helps the company to broaden its ecosystem.
While customers love its products, the company also provides various related services. These include fee-based service and support products under the AppleCare brand, cloud services, advertising, payment services, and digital content. Thanks to its innovative products and services, Apple’s installed base (the number of devices currently used by customers) crossed 2 billion active devices in the third quarter of 2023.
Apple's growing installed base shows the success of its products and brings more customers into the ecosystem, which is essential for long-term growth. In addition, its highly profitable services business is growing rapidly, providing more earnings power to Apple.
Overall, Apple - with its market-leading products, focus on innovation, strong earnings base, and robust balance sheet - is poised to outperform the broader markets by a significant margin in the long term. Also, its ability to return substantial cash to its shareholders through share repurchases ($90.2 billion in 2022) and growing dividends ($14.8 billion in 2022) should further enhance shareholders’ returns.
Eighteen out of 29 analysts have rated AAPL stock a “Strong Buy,” three have a “Moderate Buy” rating, and eight analysts suggest a “Hold.” These analysts have a 12-month average price target of $205.07, which is about 14.8% higher than current levels.
Nvidia
Nvidia is a must-have stock to capitalize on the dominant next-gen technology, which is generative AI (Artificial Intelligence). NVDA, being the leader in the AI space, is well-positioned to benefit from the ramp-up in AI adoption and its implementation across various sectors and services.
Thanks to its leading competitive positioning in AI, Nvidia stock has gained significantly on a year-to-date basis (about 215%) and has generated massive returns over the past decade (in the neighborhood of 13,000%).
While NVDA has made its long-term investors rich, the company has the potential to deliver stellar returns in the coming years, as well, as it continues to expect solid demand for AI and accelerated computing from cloud service providers (like Google), consumer internet companies (like Meta), and enterprises. Plus, the company is witnessing solid momentum in verticals like automotive, healthcare, financial services, and telecom.
At the end of Q1, Nvidia said its automotive design win pipeline over the next six years stood at $14 billion, adding visibility on future growth. Further, generative AI will be transformative to gaming and content creation, which will drive demand for its GPUs (Graphics Processing Units). And despite remarkably high expectations heading into its latest earnings report, Nvidia still managed to surprise to the upside.
NVDA - with its full AI stack that supports every framework and model - is a long-term winner, and analysts are optimistic. Among 34 analysts, 28 recommend a “Strong Buy,” three maintain a “Moderate Buy,” and three have a “Hold” recommendation. Further, the average price target for NVDA stock is $513.03, which suggests a further upside potential of about 11.5% from current levels.
Costco
Costco's defensive business model, value proposition, dominant competitive positioning, and ability to deliver above-average comparable sales growth make it a solid long-term investment. The company operates membership warehouses and e-commerce websites.
However, what stands out is its ability to offer low prices to its members on nationally branded and private-label products across various categories. This, in turn, helps it to produce solid sales volumes.
Investors should note that higher volumes, rapid inventory turnover, and operating efficiencies through volume purchasing, self-service warehouse facilities, and efficient distribution enable the company to deliver solid margins.
Costco also benefits from its high member renewal rates (the worldwide renewal rate stood at 90.5% at the end of the most recent quarter). This shows solid customer loyalty and drives membership fee income, adding resiliency to its business model.
The opening of new warehouses, its loyal membership base, unique value proposition, and e-commerce expansion will drive its top line over the long term. Moreover, operating efficiencies will cushion Costco's bottom line and support its stock price, dividend payouts, and share repurchases.
Of 25 analysts tracking COST, 16 recommend a “Strong Buy,” three maintain a “Moderate Buy,” and six have a “Hold” recommendation. The average price target for COST stock is $570.39, which is 6.8% higher than current levels.
Bottom Line
All three of these corporations operate durable businesses. Moreover, they are ahead of the competition, which adds confidence. Their ability to drive sales and earnings in the long term, and their collective focus on enhancing shareholders’ value, makes them top long-term stocks to buy and hold forever.
Finally, it’s important to highlight here that equities are volatile by nature. Long-term investors shouldn’t worry too much about short-term volatility in these stocks, and continue to hold on to their investments with an eye toward the future.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
