A classic example of how true this is involves the Fidelity Magellan Fund, the large mutual fund made famous by portfolio manager Peter Lynch. Lynch ran the fund for 13 years from 1977 until 1990, growing it from $20 million to $14 billion before stepping aside.
Fidelity studied the returns of Fidelity Magellan unitholders over those 13 years to see how they did compared to the legendary portfolio manager. While Lynch managed to achieve a 29% annual return over this period, the average investor lost money.
Patience would have served those investors well, as the ups and downs of the stock market shook them out of their positions — and in doing so, depriving them of millions of dollars in profits. A $10,000 investment in 1977 held until 1990 was worth $273,947 by the end of that 13-year period.
I’m not Peter Lynch, but I can say with some confidence that the examples to follow are the 10 best stocks to buy for the next decade.
Let’s take a look.
Amazon
Not only is Amazon.com, Inc. (AMZN) CEO and founder Jeff Bezos a great chief executive, but Amazon has its hands in so many pies — including a very profitable cloud business that generates almost $1 billion in annual operating income — that it’s hard to fathom just how big Amazon could be a decade from now.
While Amazon’s AWS cloud business is a big deal, Amazon Prime is the service that delivers the goods when it comes to building the foundation for AMZN stock. More than 100 million people subscribe to Amazon Prime at $99 per year.
It’s not the $9.9 billion in annual subscription revenue that matters, but the amount each of those subscribers spends on other Amazon products. Statistics show that 76% of Amazon Prime members spend more than they did before paying the annual $99 fee.
That’s what you call “pulling power,” and it’s a big reason why AMZN stock will be a winner for the long haul.
Blue Buffalo Pet Products
If you bought Blue Buffalo Pet Products Inc. (BUFF) at its July 2015 IPO price of $20 and you’re still holding it through April 17, you’ve made money — barely.
The pet food maker has been on a wild ride since going public almost two years ago. It opened with a first-day return of 36%, but proceeded to fall from $28 to $16 in the span of a couple months, only to gain most of that back by its one-year anniversary.
However, BUFF is an explosive stock lying in wait.
Blue Buffalo is investing $150 million-$170 million in 2017 to expand its manufacturing capacity so that it can accommodate further growth beyond 6% of the $28 billion U.S. pet food market. In 2016, its adjusted earnings per share increased 27.2% to 79 cents; it expects that number to increase by as much as 19% in 2017 to between 91 and 94 cents per share.
Over the past five years, Blue Buffalo has more than doubled its revenues, from $523.0 million in 2012 to $1.1 billion in 2016, while growing net income from $65.5 million to $130.2 million in the same period.
People will continue to spend more on healthy food in the coming decade, and that includes for their pets. Blue Buffalo is ready to capture more of those gains, and BUFF shareholders will benefit as a result.
Apple
You can say what you want about the iPhone maker’s best days being behind it, but I have a feeling Apple Inc. (AAPL) will continue to create products people want to buy for years to come.
What they are, I couldn’t tell you.
What I do know is that Apple will continue to generate a huge amount of free cash flow — $52.5 billion in the trailing 12 months through Dec. 31, 2016 — to reward shareholders for their patience and loyalty. AAPL currently converts 71.7% of its EBITDA into free cash flow, which is pretty darn close to the 77.7% conversion rate of Amazon — a company known for doing a good job converting cash.
The most recent rumor on Wall Street has Apple and Walt Disney Co (DIS) hooking up to form a media and tech conglomerate. While speculative in nature, the combination would provide Apple with a few more avenues to generate ideas for new products.
At this point, while I like Disney, I’d say it needs Apple more than Apple needs it.
Berkshire Hathaway
Warren Buffett is 86 years old. Eventually, he’s going to step out of the game. The argument is that his departure will create a panic that will send Berkshire Hathaway Inc. (BRK.A, BRK.B) stock spiraling downward.
Personally, I don’t subscribe to that theory.
Businesses — whether it be a huge holding company like Buffett’s or something much less grandiose — are valued by calculating the present value of its future cash flows. Berkshire Hathaway’s are significant.
Another way to value a business is to look at the sum of all its parts.
Berkshire Hathaway owns hundreds of businesses; each of these firms, if sold at auction, would be worth more than the current stock price would seem to reflect. If Buffett moved on and the company was broken up in a prudent manner over an extended period, Berkshire Hathaway investors would benefit greatly from such a process.
The best part of Berkshire Hathaway? You get a quasi-mutual fund with a diversified group of holdings and no management fees.
That’s the best kind of buy-and-hold investment.
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Dynamic Wealth Research was founded on the principle the world is changing at an ever-increasing pace. The greatest profit opportunities an investor will ever find are from massive, sweeping changes. Dynamic Wealth Research analyzes and closely follows these changes, keeps its readers on the leading edge of them, and shows you how to be best positioned these anxious, interesting, and ultimately profitable times.
