At The Motley Fool, we’re big believers in owning great companies for the long haul. Building a portfolio that is rooted in well-established, financially sound blue-chip stocks can provide investors with steady growth and the ability to sleep soundly at night. So, without further ado, here are five rock-solid blue chips to consider owning for years.
1. Apple (AAPL).
It seems investors who worried that Apple would falter in a post-Steve Jobs world can rest easier. The company continues to roll out innovative products that are protecting its ecosystem and fueling its growth. This is evidenced by the fact that Apple’s revenue increased 27% year over year to $58 billion last quarter — an astounding feat for a company of this size.
Importantly, Apple’s healthy 31.6% operating margin means that it’s kicking off plenty of shareholder-friendly profit that’s likely to continue supporting its share buyback and dividend plans. With shares trading at just 13.5 times next year’s earnings, buying Apple for a long-term portfolio would seem to make a lot of sense.
2. Mastercard (MA).
The world is increasingly paying for goods and services electronically, and that’s good news for Mastercard. Admittedly, Mastercard gets a lot of business overseas, and that means it will have to overcome currency exchange headwinds this year. Since December, the value of the U.S. Dollar has appreciated against other currencies, including the euro, and that has caused sales to slip at companies that, like Mastercard, have to translate sales made in non-USD currencies into more valuable greenbacks. Last quarter, currency exchanges reduced Mastercard’s revenue growth to 3% from what would have otherwise been 8%. Although currency risks remain for the company, they should prove to be short-term in nature. After all, currencies will always fluctuate, and their impact can be blunted by hedges.
If currency headwinds fade, then taking advantage of any weakness in Mastercard could make sense, especially if the economies in Europe and Asia pick up the pace. So far, Europe’s post-recession recovery has been more tepid than the U.S. Recovery and Asia is still feeling the pinch, too. However, both regions could begin to improve thanks to pro-growth policies, such as Europe’s quantitative easing program that is similar to the program that helped America’s economy bounce back.
Overall, Mastercard’s currency adjusted growth rate should be in the high-single-digits this year, but that growth could accelerate — especially if Europe gets better and Chinese consumers’ reliance on cash transactions wanes.
3. Gilead Sciences (GILD).
Aging baby boomers are giving biopharma companies plenty of reason to invest in new drugs, and that innovation is revolutionizing patient treatment. Gilead Sciences is at the forefront of this movement.
The company is the market-share leader in HIV treatment, and it recently launched drugs that offer cure rates of more than 90%. Gilead Sciences is the leader in hepatitis C treatment, too. Although competitors will always angle to outmaneuver it, Gilead Sciences’ deep product pipeline should insulate its HIV and hep C market share for years to come while also unlocking new opportunities for Gilead in areas including cancer treatment.
Gilead Sciences also has a rock-solid balance sheet that includes $14.5 billion in cash and marketable securities. It’s also one of just two biotech companies that pay a dividend, so there’s plenty to like about owning this stock.
4. Nike (NKE).
Nike is one of the most recognized brands on the planet. Its footwear and apparel set the standard for athletes, and an expanding middle class overseas should continue to drive revenue and profit higher. Like other multinationals, Nike faces currency risk in the short term, but those risks shouldn’t dissuade you from owning it.
Nike’s sales have increased steadily from less than $7.5 billion per year in the mid-1990s to more than $30 billion during the past 12 months. Its net income has improved from less than $750 million to more than $3 billion during that same period of time. That indicates that it knows a thing or two about overcoming short-term headwinds, and it also suggests that Nike can succeed even as competition intensifies. After all, Nike’s growth has come despite a big challenge from competitor Under Armour, and trends support demand for high-margin, high-performance materials that command top prices.
5. UnitedHealth Group (UNH).
Worries that health care reform could hurt this health insurer have kept investors on the sidelines, but that’s a mistake. Shares have climbed as reform fears have faded, and investors are beginning to recognize the potential revenue opportunities of a larger and increasingly insured population.
Because employment is increasing and more Americans are signing up for health insurance through exchanges, UnitedHealth Group’s revenue should continue to head higher. That’s particularly true given that United Health Group offered exchange plans in 23 states this year, up from just 4 states a year ago, and 11 million Americans were enrolled in exchange plans during the open enrollment period, which ended in mid February.
UnitedHealth Group also generates a lot of money selling Medicare plans to seniors and running state Medicaid programs, both of which are becoming increasingly profitable. Last quarter, UnitedHealth Group’s Medicare revenue totaled $12.8 billion, up 11% year over year, while its Medicaid sales reached $6.9 billion, up 33% year over year.
UnitedHealth Group is also expanding thanks to its Optum business, which is establishing it as a leader in health care data analytics — an area that is becoming increasingly important in controlling costs and determining patient treatment. Overall, revenue from membership growth and rising demand at Optum should provide plenty of catalysts to drive UnitedHealth Group shares higher.
Tying it together.
No one knows where shares will head in the short term, but each of these companies has put up remarkable returns for investors over the long term. They’re all extremely well-run innovators marketing brands that have become the leaders in their industries.
They also boast rock-solid blue chip financials. For those reasons, it’s hard to argue against owning them at the core of a long-term portfolio.
Todd Campbell owns shares of Gilead Sciences. Todd owns E.B. Capital Markets, LLC. E.B. Capital’s clients may or may not have positions in the companies mentioned. The Motley Fool recommends Apple, Gilead Sciences, MasterCard, Nike, and UnitedHealth Group. The Motley Fool owns shares of Apple, Gilead Sciences, MasterCard, and Nike.
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