In recent times, there’s been a change in focus from investing to trading for younger share buyers. The rise of retail trading platforms, making option trading and cheap leverage available freely, has contributed to this. Yet trading profitably over a long period is hard, almost impossible. Instead, investing in a top UK stock for life can be a less stressful way to try to make money.
The general premise of investing is that you hold a stock for the long term. A company can take years to grow, with the share price following suit. By having the mindset of investing for life, you reduce the pressure to see quick, large profits. With that in mind, if I had to buy just one stock right now and hold it for life, what would I pick?
My top UK stock to hold for life
After thinking hard about this, I’d pick British American Tobacco (LSE: BATS). It won’t be suitable for everyone as it definitely comes into the ‘sin stock’ category. But the firm is a well-known constituent of the FTSE 100, and has been in business for over a century. It’s a truly global business, operating in over 180 countries. Sales mostly come from cigarette brands such as Dunhill and Pall Mall. More recently, vaping and e-cigarette names such as Vype have also contributed to profits.
It has various qualities that appeal to me as a top UK stock to hold forever. Firstly, I have confidence it will still be around in the decades to come. If I want to hold a stock for the long term, having a history of good performance helps massively. BATS knows the business model works, and that it can operate a profitable business. Even though we’ve seen a market shift towards vaping and away from cigarettes in recent years, the core product offering is still in demand. In the earnings report through to Q2 2020, it noted that “consumption trends in developed markets remain robust”.
Secondly, the market it operates in is at a mature stage of the business cycle. This, along with the high economies of scale for new entrants, gives BATS a strong hold on the market. There are five major tobacco firms, each of which has been in the market for a long time. Although such a concentration of market share over just a few companies may be seen by some as inefficient, there are few signs of this changing short term.
Long-term stock performance
Another reason like this share is its previous share price performance. I want to see good returns in coming decades, and so can see what return I would currently be sitting on if I’d invested a couple of decades ago. Twenty years back, the share price was around 450p. There’s been a downward trend over the past few years, but in January this year it traded above 3,500p. The stock currently trades around 2,750p. This is a return of around 615% from the 450p figure, and the January price also suggests potential to grow when the current crisis is over. After you factor-in inflation, that 615% return is still very strong too. This doesn’t include the dividend income either.
If I could buy just one UK stock right now for the rest of my investing career, BATS gets my vote!
jonathansmith1 owns shares in British American Tobacco. The Motley Fool UK has no position in any of the shares mentioned. 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.