As investors continually seek out new investment ideas, it can
get very tiresome. Just when you've found certain appealing stocks,
they move up to your price target or lose operating momentum, and
you're compelled to find the next idea. But what if you could hold
a stock for the whole year, a whole decade or even a whole
Well, that's how people used to invest. My grandmother boughtshares
in the 1950s -- and never sold them. Thedividend income was surely
appealing. And thecapital appreciation helped her stay well ahead
of the forces ofinflation . But if my Grandma were alive today,
would she still be able to find a "forever stock?" After all, in
recent years, even stalwarts such as AT&T have lost their
luster: Ma Bell'sshares have fallen by half since 2002.
You can still find "forever stocks" if you know where to look. The
key ingredient is to seek out companies with long operating
histories, that sell goods or services that won't become obsolete,
and routinely generate solid rates of return on their deployed
Of course, if it is to be a core holding, you'll have to avoid
companies subject to wild cyclical swings such as
Deere & Co. (NYSE:
JP Morgan (NYSE:
. Those companies are likely to be around -- and flourish -- for
many decades to come, but they'll give you plenty of indigestion
along the way. You also want to find companies that can handle
external impacts such asinflation . They must show the ability to
raise prices whenever their own costs rise.
Yum Brands (NYSE:
has seen itsshares rise steadily for more than 15 years. The
fast-food operator is truly becoming a global name with its KFC,
Taco Bell and Pizza Hut restaurants opening around the world. That
means the company is truly tied to the globe and not just the
United States. Fearinginflation ? These value-oriented chains would
hold even greater consumer appeal if rising prices deter people
from eating at pricier restaurants.
The ultimate rain or shine stock
There's one thing that's bound to never change: people always need
shelter. They can look to buy a home or spruce up their existing
home. Or they can look to rent a place if home ownership doesn't
appeal. And no matter where they live, people dislike old dingy
walls with flaky paint. So a fresh paint job is often a key step in
turning a house into a home. And that's been great for
. It's not a sizzling growth story -- sales have grown from $5
billion in 2001 to around $7 billion in 2009. And in coming years,
analysts only expect sales to keep growing at a high single-digit
pace. Yet for a "forever stock," that's good enough.
What drives the company's growth? A nice combination of annual
price increases, new household formation of around 1.0-1.5 million
in the United States (a trend which has only temporarily stalled in
recent years), and international expansion. The company, which is
five years away from its 150th anniversary, operates more than
Here in the United States, Sherwin-Williams should benefit from an
eventual rebound in housing. Looking abroad, the company has a
chance to build on its 500-plus store base, developing a go-to
brand name as it has in the United States. Those growth drivers are
augmented by a series of stock buybacks as management puts
excesscash flow to work.Free cash flow (FCF ) is on track to rise
for its sixth straight year, to nearly $700 million.
Sherwin Williams is also on track to boost itsdividend for at least
the 10th straight year. (My database doesn't go back further than
that). The company hiked itsdividend by more than 20% a year during
2005 through 2007, though payout hikes have been more modest in
recent years. A reboundingeconomy and all thatFCF should set the
stage for more robustdividend hikes in the years to come.
As a final kicker, the company's return on equity has exceeded 30%
in each of the last four years -- not bad for a company that was
exposed to the brutal downturn in the housing market.
Action to Take -->
It's simply hard to imagine a scenario where demand for paint
slumps. And Sherwin-Williams has the most powerful brand in the
business. A caveat to the "forever stocks" scenario: markets have
rebounded sharply, liftingshares of companies like Yum Brands and
Sherwin-Williams. Some investors may prefer to wait for deep market
pullbacks before pouncing on these buy-and-hold-forever names. Then
again, that approach may cause you to miss out on even more upside
that many predict for thestock market in coming years.
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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