Warren Buffett is probably best-known for his long term holding periods. He has famously said you should only invest in a business if “you’d be perfectly happy to hold if the market shut down for 10 years.”
Here at the Motley Fool, we follow a similar mantra. We’re always on the look out for winning stock ideas that we believe will generate strong returns for years on end.
The companies we like best are those with a dominant position in their markets, a record of achieving impressive returns and a proven business model. If all these requirements are in place, the business should be able to continue to generate returns through thick and thin — great news for us Fools.
Imperial Brands (LSE: IMB) is one such business. The tobacco business may not be everyone’s cup of tea, but it cannot be said that tobacco companies don’t look after their investors.
According to research from Credit Suisse, published two years ago, tobacco stocks are the best performing investments ever achieving an average annual return of 15%. Over the past 15 years, shares in Imperial Brands have produced a total return of 14.2% per annum for investors, outpacing the FTSE 100 by just under 10% per year.
These returns look set to continue as City analysts expect Imperial’s earnings per share to grow by 14% over the next two years. The shares currently trade at a forward P/E of 13.7 and support a dividend yield of 4.6%.
Prudential (LSE: PRU) has been in business in one form or another since 1848, so it can be said that the company knows a thing or two about operating with a long term outlook.
This extensive operating history has helped the company build a reputation as one of the most reliable insurers out there, and customers have flocked to the business. City analysts expect the company to report earnings per share of 140p for the years ending 31 December 2018, up more than 100% since 2012. There’s no denying that for one of the UK’s largest financial businesses this growth rate is nothing short of impressive.
Shares in Prudential currently trade at a forward P/E of 13.2, which isn’t overly expensive for a company that’s on track to double earnings over the space of five years. And as the company expands into Asia, I believe further growth is on the cards over the next decade.
Like Prudential, Reckitt Benckiser (LSE: RB) is another UK corporate giant with decades of history behind it and a record of producing returns for investors.
As one of the world’s leading consumer goods firms, Reckitt has been able to profit from the world’s ever increasing population and will continue to do so for so long as the population continues to expand. The group has also helped boost growth via bolt-on acquisitions like the recently agreed offer to buy baby milk producer Mead Johnson.
It doesn’t look as if the company’s growth will slow any time soon. For the year ending 31 December 2017, Reckitt reported earnings per share of 306p but City analysts expect earnings per share to grow by 20% to 362p by 2018. If earnings continue to expand at this rate, Reckitt will double earnings per share within seven years. With such an impressive growth rate predicted, it’s no wonder the shares trade at a forward P/E of 21.2.
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Rupert Hargreaves owns shares of Prudential, Imperial Brands and Reckitt Benckiser. The Motley Fool UK has recommended Imperial Brands and Reckitt Benckiser. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.