Stocks you can buy now and leave to your children


It seems to be a rule of thumb that following a market pullback, everyone wants to talk about the high-flyers of the week, or month, or year, and which ones are going to come bouncing back strong. That’s understandable, but if all you look at is the high-flyers, you’ll miss the chance to get in on some excellent long-term plays that you may have been interested in but dismissed as too expensive. In fact, the longer you intend to hold a stock, the more the discount you get on it by buying on a pullback will compound over time. Hold your stock until it’s worth millions, then you’ll have an extra hundred thousand dollars or two to play with, just because you allocated funds while the market was falling.

It is, in fact, possible, to time market fluctuations. The reason most people fail is that they try to spot bottoms and tops. Bottoms and tops are hard, but there’s plenty of fun to be had in the creamy middles.

Remember to treat these ideas as just that, ideas, and do your own research before making any investment decision.

Johnson & Johnson (JNJ)

It’s been called the greatest stock of all time due to its consistent dividend growth and capital appreciation, going back decades. It’s brands are so central to our lives that it’s easy to forget that they are brands: Band-Aid, Benadryl, Tylenol, Johnson’s baby powder, etc. Of all companies, it alone boasts a nearly even mix of pharmaceuticals and consumer products, each of which is defensive in a way that compliments the other. When the economy is strong, the company does well. When the economy is slow, the company still does well. When the economy goes of the rails… well, it gets back on the rails soon enough. For a company this size, ($348 billion market cap) that naturally ends up existing in multiple industries, it is a huge boon if each business unit be able to operate independently, and no company has siloed itself quite as effectively as Johnson & Johnson. All large companies wish to avoid the tarry fate of the dinosaurs, but for some reason, few have ever fully employed Johnson & Johnson’s strategy, until recently. More on that in a bit.


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eBay (EBAY)

EBay’s long partnership with PayPal is finally coming to an end, and while both companies have done extremely well, the bulk of the benefit seems to have gone to PayPal. It makes sense that eBay would look for a partner that would let it keep a larger slice of the pie, and for that reason, it will henceforth be transitioning to working with a Dutch payment processing firm called Adyen. If eBay follows in its own footsteps, and those of a slew of other online shopping sites, it will likely take a major stake in Adyen. The move helps eBay in two ways. First, it means that its deal with PayPal won’t end suddenly, unexpectedly, or on bad terms, and second, it means eBay can focus on being eBay and growing its sales. Though eBay has a current market cap of $43 billion, it looks to me like there’s a hundred-billion dollar company in there trying to get out.


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Waste Management (WM)

With 293 landfills, 146 recycling plants, 111 landfill gas projects, and six power plants, Waste Management is the largest waste collection and processing company in the US. It is also the country’s largest recycler, and it was through constantly upgrading its recycling technology that it came to realize it could probably sort America’s trash far more efficiently than America’s citizens, earnest though the later certainly were in their efforts. The result, single-stream recycling, has done a great deal to reduce recycling costs that were beginning to get out of control. Not only is Waste Management an industry leader in the world’s most dependable industry, but it is flush with cash at the moment, and profits are rising rapidly.


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General Mills (GIS)

So what are the properties we look for in a long term hold? How about a product with enduring appeal, say, Cheerios, Weaties, & Lucky Charms. How about product diversity, say with Yoplait yogurt, Haagen-Dazs ice cream, and frozen foods? Steady growth would be nice, though we might forgive it being more stable than explosive, especially in such a mature market. I low P/E, under 20 in this case, would be nice, as well. Finally, we would want a good dividend yield, plus a steady history of rising dividends, so we could be confident of a good total return for years to come. Well, it so happens that the current yield for GIS stock is 3.57%, and the company has paid a dividend in each of the past 119 years.


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Alphabet (GOOGL)

So, if you haven’t guessed yet, Google / Alphabet is the giant company that recently adopted Johnson & Johnson’s strategy of delegating power and responsibility downward, giving the head of each corporate division the approximate responsibility of a CEO. The reason they did so is far simpler than one might guess: they noticed that companies worth more than $400 billion or so begin to crumple under their own weight and fail, even when diverse enough, in theory, to keep growing. Since Alphabet has at least a dozen sources of revenue, it believes it can grow better as a dozen cooperating but independently run companies. So far, it seems to be working—Alphabet is now worth $742 billion, and my guess is that it will hit $1 trillion before the $849 billion Apple.


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Julian Close

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

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