When I’m searching for buy-and-forget shares to add to my portfolio, I’m on the lookout for businesses that dominate their respective markets with substantial competitive advantages which will enable them to stay ahead of the competition.
These advantages come in all shapes in sizes. Take leading building materials business CRH (LSE: CRH) for example. This business is the largest supplier of building materials in the world, employing 90,000 across several continents.
Not only does CRH have size on its side, it also operates in a regulated industry, which gives a certain degree of protection against competition. An upstart can’t just go and open a new concrete production plant or quarry wherever it wants. A new competitor first has to find a suitable piece of land and is then subject to a lengthy planning process before it can even start construction.
This arduous process is why CRH prefers to buy rather than build. Year-to-date, the firm has already forked out €0.2bn on 16 bolt-on acquisitions/investments, and there will be more deals to come as management has been successfully executing this strategy for years.
Near term growth
All of the above leads me to the conclusion that CRH is an excellent buy-and-forget investment for the long term, and analysts are predicting big things from the group in the near term as well.
The City has pencilled in earnings growth of 17.5% for 2019 and 11% for 2020. CRH’s first-quarter trading update implies the firm is well on the way to meeting this growth target with sales up 7% on a like-for-like basis for the first three months of 2019.
Also, analysts are expecting the firm’s dividend payout to shareholders to rise by around 10% over the next two years. As the distribution is covered 2.5 times by earnings per share, I wouldn’t rule out further growth in the years ahead. The yield currently stands at 2.6.%.
Another stock I’m interested in as a buy-and-forget play is Burberry (LSE: BRBY). The luxury fashion house’s competitive advantage is its brand. Shoppers all over the world are happy to pay a premium for the company’s clothes and accessories, and the business doesn’t have to spend billions to keep customers coming back. As a result, its profit margins and cash generation are above average.
Last year, the company reported an operating profit margin of 17%, almost double the market average, while its return on capital employed — a measure of profit for every £1 invested in the business — was 29.5%.
Fat profit margins have allowed Burberry to return billions to investors while keeping funds back for a rainy day. At the end of 2018, it reported a net cash balance of £650m after returning £520m to shareholders via buybacks and dividends during the year.
I expect this trend to continue for the foreseeable future. I think the stock’s current valuation of 23.7 times forward earnings isn’t too much to pay for this leading fashion brand that has a strong track record of returning cash to investors.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Rupert Hargreaves does not own any share mentioned. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.