Although amusement parks may not be open due to the 2019 coronavirus disease pandemic (COVID-19), Wall Street has had all the roller coasters it can handle in 2020, and there are still 5.5 months left in the year.
When COVID-19 cases initially started affecting the U.S., the benchmark S&P 500 it lost a staggering 34% in 33 calendar days. It was the fastest decline to bear market territory since a recent high in history. But during the second quarter, the S&P 500 delivered its best performance since 1998, with technology dependent Nasdaq compound setting more than two dozen record highs this year, despite pandemic turmoil.
If 2020 has taught or reminded investors of anything other than the fact that corrections are impossible to predict accurately in advance, it is that buying and holding large companies is the easiest and most successful path to wealth creation. Best of all, some companies are so outstanding that there really is no need to sell.
If you have $ 5,000 in disposable cash that won’t be needed to cover an emergency or pay bills, you should seriously consider buying these three tier one stocks with the intention of never selling them.
Image source: Getty Images.
Visa
One of the best stocks you can buy and never have to worry about selling is the payment processor Visa (NYSE: V).
Although Visa is susceptible to a reduction in the volume of payments that crosses its network during periods of contraction or recession, these downward trends in the economy have historically been much shorter than periods of expansion. This means that buying Visa would link your investment to the overall growth of the US and the global economy. Historically, that’s a winning bet.
Another factor that works in Visa’s favor is its dominant market share in the United States. Visa’s share in the volume of credit card purchases was 53% in 2018, representing an increase of 11 percentage points since 2008. It is in an enviable position, as it is the clear number 1 in an economy that depends much of consumption and also the largest in the world.
Visa also avoids calamity by focusing on the payment processing side of the equation and not on the loan side. While this means that you cannot double and earn interest income during expansion periods, it also means that there is no direct adverse impact when loan delinquency increases during contractions and recessions. This has been the key to Visa’s profit margin of more than 50%.
History has shown that every time Visa falls, you buy and reap the benefits of being patient.
Image source: Getty Images.
Intuitive surgical
Another outstanding business with an incredible moat that you will never need to sell is the Surgical Systems Developer. Intuitive surgical (NASDAQ: ISRG).
Intuitive Surgical is a monster in the space of assisted robotics. It has installed 5,669 of its da Vinci surgical systems worldwide, as of the end of March 2020. It could bring together all of its competitors, and they still wouldn’t get close to Intuitive’s footprint in the past two decades. This makes it a clear choice for surgical systems, and essentially locks up its clients (hospitals and surgical centers) for very long periods of time.
Intuitive Surgical is also based on the razor blade business model. He hooks his clients into the razor, which in this case is his da Vinci surgical system. While they are expensive ($ 0.5 million to $ 2.5 million per system), these systems generally have mediocre margins. This is because they are complex and can be expensive to build.
The “blades” are where Intuitive Surgical generates most of its margins and profits. These are the instruments and accessories that are sold with each procedure, as well as the service performed on each installed system. As the number of systems installed worldwide increases, so will the margins of Intuitive Surgical.
Ultimately, this is a company that has just scratched the surface of what its robotic systems are capable of in soft tissue surgeries. Expect your market share to expand and profit growth to outstrip sales growth for a long time.
A jubilant Warren Buffett at his company’s annual shareholders meeting. Image source: The Motley Fool.
Berkshire Hathaway
Although CEO Warren Buffett has been widely criticized for its “underperformance” of the S&P 500 in the past decade, there is no denying how impressive Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) It has been for the past 55 years. According to the company’s 2019 annual letter of shareholders, Berkshire Hathaway has generated compound annual average earnings of 20.3% since 1965, with an aggregate return of 2,744,062%!
One of the reasons Berkshire Hathaway is so successful is because Warren Buffett has the reins. Buffett firmly believes in buying companies with sustainable competitive advantages and strong management teams, and most importantly, maintaining them for exceptionally long periods of time. Many of Buffett’s highest-performing stocks have held for two or more decades.
The Omaha Oracle is also a big fan of cyclical companies, such as bank stocks. Similar to Visa (which turns out to be a Berkshire tenure), Buffett has linked Berkshire Hathaway’s health to that of the US and global economy. Although recessions are an inevitable part of the business cycle, periods of expansion tend to last much longer than setbacks.
Don’t forget that Berkshire Hathaway has acquired more than five dozen businesses during Buffett’s tenure. Even if Berkshire’s investments aren’t up to scratch anytime soon, the company has a number of well-known businesses, such as insurer GEICO and rail operator BNSF, to regain slack. There’s almost no need to part with superior performance like Berkshire Hathaway.
