Active trading is a risky endeavor that is packed with tons of action, and having too much invested in companies with a lack of staying power can quickly cause any investor to fall behind their long-term goals.
To stay one step ahead of the pack, active investors need to continually monitor their existing stock holdings while also researching new investment ideas. It takes a lot of time and for many, simply parking money into an index fund or a mutual fund is a much easier path.
What is the downside of this strategy? Those funds hold a range of investments that can bring mixed results. Moreover, the expenses on those funds can often eat into your returns, and that really adds up when the power of compounding kicks in.
[Read on to learn more on compounding: How to Get Rich Slowly]
Perhaps the wisest move is to find a handful of great investments and hold on to them for a very long time. The transaction costs will be minimal and your portfolio won't be weighed down by “flash-in-the-pan” companies that lack staying power.
Here are five companies that comprise a well-rounded portfolio. Each company has been around for a long time, and is likely to remain as a major force for many years to come as well. In fact, you could hold these five stocks 'forever.'
1. Procter & Gamble (NYSE: PG)
Investment advisors often suggest owning 'consumer staple' stocks, though you can simply focus on the industry's strongest player. The maker of such brands as Crest, Iams, Bounty, Duracell and Tide will be celebrating its 175th anniversary next year.
Sales may seem to grow at a slow pace every year, but really build a head of steam over time: P&G's sales rose nearly 100% from 2002 to 2010. Most important, P&G continues to boost its exposure to the world's most dynamic emerging markets such as China, India and Brazil.
[Read on to learn more about consumer staple stocks: This Stock Just Passed the Infamous 'Pink Slip' Test]
2. GE (NYSE: GE)
At the height of the 2008 economic crisis, many wondered if this venerable blue-chip stock was still relevant. After all, a big bet of financial services wrought havoc on the company's shares, briefly pushing them below $10 for the first time since 1995.
That scare proved to be short-lived and shares have rebounded, though they still trade for less than half of what they fetched in the middle of the last decade.
That may prove to be a good entry point for those investors looking for a long-term holding. GE has steadily re-positioned itself to capitalize on the latest major trends in the global economy.
The company:
- Builds state-of-the-art energy efficient equipment for power plants (with exposure to both fossil fuel energy and clean energy such as wind).
- Holds leading market share in transportation equipment such as jet engines and hybrid locomotives.
- Has developed a strong platform of health care technologies.
- Maintains a major presence in the financing of global infrastructure products.
GE truly appears on the mend. Earnings per share (EPS) peaked at $2.20 in 2007, fell to $1 by 2009, and are expected to steadily rise back to around $1.65 by 2012. As the global economy expands over the next few decades, GE should grow right along with it.
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#3. Citigroup (NYSE: C)
This may seem to be an odd choice for a long-term portfolio, as Citigroup has caused all kinds of pain for investors in recent years. But behind the scenes, Citigroup has been transforming itself into a major global player.
CEO Vikram Pandit has sought to reduce Citigroup's exposure to the weak U.S. economy while aggressively investing in the world's most dynamic emerging economies.
Right now, North America and Europe constitute about two-thirds of revenue. But emerging markets are expected to grow at a faster pace than Europe and North America in coming years, so that revenue mix may move closer to 50/50.
If the dollar weakens further, as many economists predict, then that international exposure will really pay off as Citigroup's foreign earnings rise in value.
[Read on to learn more about: The Simple Ways to Profit from the Falling Dollar]
4. Cisco Systems (Nasdaq: CSCO)
This technology firm was one of the hottest stocks of the 1990s and one of the most disappointing stocks of the last decade. Cisco -- which makes a range of products from telecom switches to video-conferencing systems -- began to lose focus as management poured resources into a range of new initiatives (such as the star-crossed Flip camera).
Management is now duly chastened and vows to do better. Even as the company searches for the right rebound formula, business is still pretty good.
Cisco generates roughly $10 billion in annual free cash flow, and has boosted sales at least 10% in six of the last seven years (which seems disappointing for a company that boosted sales in excess of 20% every year in the 1990s).
Thanks to more than $5 billion in annual spending on Research & Development (R&D), Cisco is ensuring that its next generation of products will remain on the leading edge of technology trends. Whatever money is left over after R&D spending is going towards major share buybacks.
The company announced a $10 billion buyback plan in November, 2010, after previously buying $72 billion worth of its own stock since 2001. Shares of Cisco are out of favor while the company re-focuses its efforts, creating a perfect entry point for those investors looking to build a long-term portfolio.
[Read on to learn more about: What Stock Buybacks Mean to Investors]
5. Ford Motor (NYSE: F)
This auto maker has executed a remarkable turnaround. After flirting with bankruptcy a few years ago, major cost cuts -- coupled with an outstanding line-up of new vehicles -- has put Ford back on the road to health.
Shares rose nearly 1,000% from 2008 to early 2011, but have since pulled back by a considerable amount. For long-term investors, the pullback is a great entry point as Ford's best days still lie ahead.
The company is earning around $2 a share every year even as the auto industry posts sales levels that are well below prior peaks. Industry analysts expect auto and truck sales to rise higher over the next few years, which should help Ford to generate even stronger profits.
[Read on to learn more about: The Most Affordable Fuel-Efficient Cars of 2011]
The Investing Answer: All of these companies share a few key traits: seasoned management teams, global exposure and fresh product line-ups. All have been around for many decades (with the exception of Cisco Systems which was founded in 1984), and all figure to dominate the markets many decades into the future as well.
