One key principle of long-term investing is letting your winners run. Charlies Munger reiterated this idea in his famous maxim; “The first rule of compounding: Never interrupt it unnecessarily.” This approach works with long-term stocks, especially those with durable competitive advantages.
The following long-term stocks are well-positioned to deliver attractive shareholder returns for decades. First, they are on a solid financial footing with robust balance sheets. This stability is essential, especially in a high interest rate environment where weak companies are facing financing challenges.
Secondly, they have significant competitive advantages that will support sustainable EPS growth. With leading positions in their industries and minimal risk of disruption, these companies can continue growing earnings uninterrupted.
Thirdly, these long-term stocks are undervalued today, presenting substantial upside. Each stock trades at a discount to its 5-year forward price-to-earnings multiple. Scooping up some shares to hold for the long term will yield attractive total returns.
VeriSign (VRSN)
Verisign (NASDAQ:VRSN) plays a critical role in the modern internet infrastructure as the provider of .com and .net domains. It has exclusive agreements with Internet Corporation for Assigned Names and Numbers (ICANN), giving it the sole rights to register websites with these two top-level domains. Furthermore, its ICANN contracts have a presumptive right of renewal underpinning VeriSign’s monopoly position.
Over the past 26 years, VeriSign has provided uninterrupted DNS services. Furthermore, it continues to invest in secure data centers, security infrastructure, high-speed servers and 24-hour customer support. With this consistency in upholding contractual obligations, VeriSign will likely qualify for automatic contract renewal every six years.
Due to its monopoly position, VeriSign has been consistently profitable, with 5-year net margins averaging 54%. It also earned an impressive 39% return on equity over the same period. These numbers reinforce the impressive economics of the domain registry business. As long as it maintains its lucrative registry business, VeriSign remains one of the long-term stocks to buy.
At 22 times forward earnings, VRSN stock is poised for an attractive rate of return going forward. On a forward P/E basis, the stock is the cheapest in five years, making it a no-brainer investment.
Crown Castle (CCI)
This cell tower operator is another bargain opportunity in this market. At a forward price-to-funds-from-operations (P/FFO) of 14, Crown Castle (NYSE:CCI) stock is undervalued. What’s more, you enjoy a 6.1% dividend yield.
Regarding forward prospects, its cell tower business will continue to generate cash. Its legacy tower business owns 40,000 cell towers, primarily in the U.S., which it leases to wireless carriers. Typically, leases are on long-term contracts with 3% annual rent escalators. Since cell tower costs are largely fixed, Crown Castle has significant operating leverage.
Based on 2023 financials, the cell tower business accounted for 68% of revenues. Therefore, a significant portion of Crown Castle’s income is very stable. Moreover, the growth in mobile data will continue to drive cell tower demand. Thus, Crown Castle is one of the top long-term stocks to buy.
Even in the short term, activist pressure from activist Elliott Management could push the stock higher. The pressure has brought about changes, especially with the appointment of a new CEO. Furthermore, it has announced a strategic review of the fiber business. Altogether, the cooperation agreement with Eliott will yield strategic improvements that unlock shareholder value.
Zoetis (ZTS)
The humanization of pets is one of the most underappreciated long-term trends. Households continue to spend more on pets in areas such as food and wellness. Although there was a pull forward in growth in the pet industry during the pandemic lockdowns, the long-term trajectory is still intact.
Under this secular backdrop, Zoetis (NYSE:ZTS) is one of the beneficiary long-term stocks. It is the global animal health leader, with approximately 20% of revenues from patented products. Due to its patents and strong brand name, the animal health giant can charge a premium for its products.
This advantage is reflected in its superior financial performance. Over the past three years, revenues have grown at a 7% compounded annual growth rate. Turning to profits, the company has consistently achieved operating margins above 35% over the same period. Due to operating leverage, it has achieved a 3-year diluted EPS CAGR of 11.8%.
After a slow start to fiscal year 2023, earnings strengthened through the year and Zoetis managed 8% year-over-year revenue growth in Q4 2023. Even better, revenues accelerated in Q1 2024 with growth at 10% year-over-year. New products in dermatology, pet parasiticides and osteoarthritis pain drove the growth.
Over the past 11 years, Zoetis has delivered 8% annual revenue growth. Considering the continued humanization of pets, it can sustain this growth rate for decades.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.