With the bull market having halted its seven-year rise, investors are wondering which stocks they should be comfortable with and which ones they should be worried about. The reality is that investors tend to hear over and over again which stocks they should buy and when they should buy them, but when they should sell is another matter entirely. Even the great Warren Buffett sells many stocks way too soon.
24/7 Wall St. is revisiting a strategy that was first published in late 2010, and then updated in 2015. This is the 10 stocks to own for the decade! Buying and holding with no end in sight is too long and boring for most of us. A holding period of a decade is more realistic.
In November of 2010, the recession was over, but the public had no idea that the bull market was going to run for more than six years. Despite some intermittent market shocks, the decade from 2010 to 2020 is proving to, at least so far, come with much less turbulence than the prior decade.
Another issue that has prevailed is that investors have been serious buyers of stock during all the big market pullbacks for the past five years or so. Those trends will not last forever, and valuations at the start of May in 2016 had stocks at an expensive 17.7 times forward 12-month earnings expectations for the S&P 500. That is admittedly a premium, even if the Federal Reserve cannot hike interest rates too high.
This list of 10 stocks to own for a decade actually outperformed a broader stock market rally, gaining about 119% on average, while the Dow rose 56% and the S&P 500 rose 69%. That outperformance was admittedly very unexpected. The endless rise of the Dow and S&P also was unexpected, along with an endless interest rate policy of rates being almost zero.
These 10 great companies had to be leaders in their industry. They had to have a market position that would not easily waver, and they had to be either paying a dividend or be sure to be paying one soon in order to qualify as a stock to own for the decade. That crossed Apple and Amazon off the list, ditto for Google. In May of 2016, the average yield for these 10 stocks is about 2.6%.
Now that we are in mid-2016, we are less than four years from reaching the year 2020. 24/7 Wall St. has stated numerous times that investors should probably not panic at all about how high the eventual Fed rate hike cycle will go. Regardless, it is important for all investors to assess their investments from time to time.
Picking stocks for a decade is much harder than it sounds. Tech and health care fall in and out of favor, or get replaced. Retail suffers from severe consumer change. And industries go through decade-long hard times now (or secular decline). Most decades also see one or two recessions and one or two bear markets — something that has not been seen this decade. Long-term investors sometimes have to think like a futurist to look through the next business cycle. They have to pick their points, and they have to take the deliberate effort to identify specifically what they want to avoid.
When 24/7 Wall St. embarked on identifying stocks for the decade, too many points to mention were considered. They are not just all Dow stocks, nor are they all growth stocks. We considered vast amounts of economic and consumer trends, business spending trends, interest rate risks, election cycles and even risks around regulation and taxation.
What is ironic in hindsight is that this list of stocks was not designed at all with an effort to outperform a meg-bull market. We wanted to identify the companies that were deeply entrenched with some defensive characteristics rather than high-growth stocks. These included utilities, services selective retail and consumer picks, business spending — and only one technology stock.
The 24/7 Wall St. stock list included the following companies: American Electric Power Co. Inc. (NYSE: AEP) and American Water Works Co. Inc. (NYSE: AWK) in utilities; Republic Services Inc. (NYSE: RSG) in garbage (services); Cisco Systems Inc. (NASDAQ: CSCO) as the sole tech stock; Dollar General Corp. (NYSE: DG) in retail; Exxon Mobil Corp. (NYSE: XOM) as the top energy stock; Kimberly-Clark Corp. (NYSE: KMB); General Electric Co. (NYSE: GE) as the top conglomerate; Walt Disney Co. (NYSE: DIS) dominates in media and entertainment; and Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA) as the top pick in health care.
When possible, alternative picks have been offered up, now that we are halfway through the decade. That being said, there is a reason each of these was picked as a company to own for the next decade. Most have raised dividends handily since 2010, and many have pursued large share buybacks.
Here are the 10 stocks in great detail, with alternative picks in some cases, for investors to consider holding for the rest of the decade.