Investing for the long term – as we’re always told to do by financial experts – can be harder than it sounds. Over time, advances in technology can make products and services obsolete, and even the most innovative businesses can lose their way. Just look at companies such as Nokia and Kodak – once leaders in their respective industries, today they are yesterday’s heroes.
For this reason, it can pay to keep things simple when investing for the long term and focus on companies that offer products and services that are unlikely to lose their appeal over time. With that in mind, here’s a look at two such FTSE 100 companies that I’d be happy to own for the next 20 years.
Unilever (LSE: ULVR) is a consumer goods company that owns a world-class portfolio of brands such as PG Tips, Dove, and Domestos. With a truly global reach, its products are used by over 2.5bn people around the world every day. I think this is the perfect kind of stock to own for the long term, simply due to the nature of its products – no matter how far technology takes us in the next 20 years I’m fairly confident people will still be drinking tea, using deodorant and cleaning their toilets in 2039.
Another reason I believe that Unilever is a fantastic stock to own for the long term is that the company has significant exposure to the world’s emerging markets. Over the next 20 years, I expect wealth in these regions to increase significantly, and I think this will boost demand for Unilever’s products, as aspirational emerging market consumers ‘trade up’ to well-known brands. This should support profits growth at the company and enable to group to keep lifting its dividend.
Unilever shares rarely trade cheaply, as it’s a popular stock that everyone wants to own. Right now, its P/E ratio is just under 19. However, I’ve found over the years that sometimes it’s worth paying a premium for quality. And in Unilever’s case, I think its valuation is justified. A yield of around 3.5% adds weight to the investment case.
Another FTSE 100 consumer goods company that I hold in high regard and would be willing to own for 20 years is Reckitt Benckiser (LSE: RB). Like Unilever, the company owns an impressive portfolio of everyday brands such as Nurofen, Durex, and Harpic. I can’t see these kinds of products losing their appeal any time soon.
The beauty of a stock such as Reckitt Benckiser is that demand for its products tends to be relatively stable over time. Even if the economy is contracting, you can be sure people will still use the group’s products, simply because its brands are well-known and, more importantly, trusted. From an investor perspective, that’s a real plus, as it means that dividends are unlikely to be reduced during a downturn.
Reckitt is another stock that rarely trades cheaply. That said, the stock has experienced a little bit of share price weakness over the last 18 months (due to concerns over its acquisition of infant formula group Mead Johnson) and right now, it can be picked up on a P/E of 16.7 with a yield of 3.1%. I think those metrics are attractive and I see the stock as a great one to own for the long term.
Edward Sheldon owns shares in Unilever and Reckitt Benckiser. The Motley Fool UK owns shares of and has recommended Unilever. 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.