Warren Buffett once recommended investors only buy stock they would be happy to own if the market closed tomorrow and didn’t re-open for the next 10 years. In other words, the Sage of Omaha promotes a mindset of only holding shares in quality companies and doing as little as possible afterwards.
While the latter might be easier said than done, here’s three listed businesses I think would make excellent ‘bottom drawer’ candidates for large-cap-focused portfolios.
For the long term
The amount of data created in the world will only grow and consumer credit checker Experian (LSE: EXPN) looks set to be a huge beneficiary given its services help a wide range of businesses make optimal decisions and prevent fraud.
Experian’s shares have been in an absolute tear so far in 2019, rising a little under 30% since January. As you might expect, this run of form, combined with the company’s aforementioned potential to continue expanding, makes it an expensive choice for growth-focused investors. The stock currently changes hands for a little under 29 times earnings.
Then again, as the highly successful fund manager Terry Smith regularly argues, price is “not the most important thing” when deciding on an investment to hold for decades. Whether a business generates consistently great returns on the capital it invests is more crucial. Experian has long ticked this box and looks set to continue doing so.
P&O-owner Carnival (LSE: CCL) would be my next pick. As the world’s biggest operator, it looks set to enjoy growing demand for cruises from increasingly active retirees and, perhaps more surprisingly, younger generations too.
Despite its solid prospects, shares have been struggling of late. The value of the company is down 25% in over the last 12 months.
Only a couple of days ago, the stock slumped after the company reduced its guidance on full-year earnings following the recent ban by the US government on cruises to Cuba. Bookings for its Continental European brands have also been hit by “ongoing geopolitical and macroeconomic headwinds.” Will this matter in 10 years? I doubt it.
Now trading on a little less than 10 times forecast earnings, Carnival’s stock looks great value. A £25bn-cap juggernaut (or should that be liner?) won’t double in value anytime soon, but this looks a secure long-term bet.
Perhaps, rather controversially given the recent issues surrounding the suspension of Neil Woodford’s Equity Income Fund, platform provider Hargreaves Lansdown (LSE: HL) would be my third pick.
Shares are down 17% from the beginning of June following the former star manager’s decision to prevent investors from withdrawing their cash from his flagship fund — one that until recently featured on Hargreaves’s Wealth 50 list.
Right now, the latter is still in damage-limitation mode. It has already waived its 0.45% platform fee on customers’ holdings in Woodford’s fund and urged him to do the same.
Sure, things could get worse before they get better, especially when the fund returns from suspension. But I can’t help feeling this episode will eventually be regarded as a temporary blip and buying opportunity.
A market leader, Hargreaves is frequently lauded by investors for its customer service and looks set to benefit from increased demand as more of us embrace the goal of investing for a better retirement.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival, Experian, and Hargreaves Lansdown. 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.