I always trust the idea of buying and holding quality stocks for the long term. However, with geopolitical, macroeconomic, and technological changes, a part of the portfolio needs to be dynamic. At the same time, there are stocks to buy and hold forever.
These stocks represent companies that have a strong balance sheet and robust cash flows. Further, these companies have remained ahead of the curve when it comes to changes and innovation. The result is sustained value creation through dividends and capital gains.
It’s also worth mentioning that most of these stocks to buy and hold is low-beta stocks. Amidst market volatility, these stocks offer protection from capital erosion. I would personally allocate at least 40% to 50% of my portfolio toward these stocks. I can also say with some conviction that total returns (dividend and capital gains) from these stocks over the next five to ten years will outperform the index.
Let’s discuss the reasons to be bullish on these stocks to buy and hold forever.
Chevron Corporation (CVX)
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Chevron Corporation (NYSE:CVX) stock is among the top stocks to buy and hold. The oil and gas exploration company was in an uptrend last year, and I expect the positive momentum to sustain. Besides the potential for capital gains, CVX stock also offers an attractive dividend yield of 3.24%.
From a fundamental perspective, there are two important reasons to like Chevron. First, the company has an investment-grade balance sheet with a net-debt ratio of 4.9% as of Q3 2022. Further, the company has low break-even assets that enable the generation of robust cash flows.
For Q3 2022, Chevron reported an operating cash flow of $13.7 billion. With an annual OCF visibility in excess of $40 billion, Chevron is positioned to make big investments and potentially increase dividends. It’s also worth noting that Chevron has a strong resource base, which implies steady production in the coming years.
Lockheed Martin (LMT)
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Global defense spending exceeded $2 trillion in 2021. It’s likely that defense spending will continue to increase with several points of geopolitical friction. Lockheed Martin (NYSE:LMT) stock looks attractive and is worth holding in the core portfolio.
In the last 12 months, LMT stock has trended higher by 27%, and the stock also offers a dividend yield of 2.59%. As the company’s order backlog swells, it’s likely that investment returns will remain robust. As of Q3 2022, Lockheed reported an order backlog of $140 billion.
For the last quarter, Lockheed reported a free cash flow of $2.7 billion. This implies an annualized FCF potential in excess of $10 billion. Therefore, dividend growth is likely to sustain.
Lockheed Martin has also been investing in new technology. This is a catalyst for growth over the next decade. The investments include a focus on hypersonics, directed energy, and autonomy, among others. With a strong balance sheet, Lockheed is also positioned for potential acquisitions in the defense space.
Costco Wholesale (COST)
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Costco Wholesale (NASDAQ:COST) has been sideways to lower in the last 12 months. This was expected, considering inflationary pressure. Further, the stock has discounted the potential impact of aggressive rate hikes on consumer spending.
Besides these near-term headwinds, COST stock is worth holding for the coming years. The U.S. economy is primarily consumption-based, and retail spending is a critical component.
Another point to note is that sales growth has been healthy even amidst challenges. For the 18 weeks that ended on Jan. 1, Costco reported sales growth of 7.6% on a year-on-year basis to $82.16 billion. The outlook remains positive, with comparable store sales growth being healthy in the U.S.
Costco also has 66.9 million households as members. This has translated into $4.3 billion in membership fees in the last 12 months. With continued expansion in the U.S. and internationally, recurring income is likely to swell. This will have a sustained positive impact on cash flows.
Rio Tinto (RIO)
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Rio Tinto (NYSE:RIO) looks attractive among commodity stocks to buy and hold forever. The stock has been in an uptrend, with a rally of 35% in the last six months. At a forward price-earnings ratio of 8.8 times, the stock remains a compelling buy. A dividend yield of 9.0% adds to the attractiveness.
One reason to like Rio is an investment-grade balance sheet. Further, for the first half of 2022, Rio reported a free cash flow of $7.1 billion. Robust financial flexibility will ensure that dividends sustain. At the same time, Rio is positioned to make big investments to potentially accelerate growth.
In December 2022, Rio completed the acquisition of Turquoise Hill Resources for a consideration of $3.1 billion. This boosts the company’s copper portfolio. Rio is also positioned to be the largest source of lithium supply in Europe for the next 15 years. With a global push towards green energy, these base metals will drive growth for Rio Tinto.
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Apple’s (NASDAQ:AAPL) stock has been an underperformer in the last 12 months. During this period, the stock declined by 25%. However, the business is a cash flow machine, and Apple is an innovator. The correction provides a good entry opportunity for the long term.
From the sales perspective, the iPhone segment remains the key growth driver. At the same time, the services and wearable segment growth has been encouraging. With product diversification, the growth outlook is positive.
Further, Apple has nearly $170 billion in cash and equivalents. With strong operating cash flows, dividend growth will continue along with share repurchases. Also, Apple is positioned to pursue inorganic growth by investing in innovation-driven start-ups.
There are reports that Apple has delayed its self-driving car launch until 2026. The company plans to sell consumer models for under $100,000. With a loyal customer base, the launch of the Apple car might be a big growth catalyst.
Newmont Corporation (NEM)
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Gold has already been trending higher, and there are several long-term catalysts for the precious metal. This includes geopolitical tension, inflation, and a weak dollar. Newmont Corporation (NYSE:NEM) stock is a good proxy for investing in gold. The gold miner has remained subdued in the last 12 months, with gold remaining sideways to lower. NEM stock is, however, attractive at current levels and offers a dividend yield of 4.12%.
Newmont Corporation has an investment-grade balance sheet, and that’s a key reason to like the stock. With strong financial flexibility, the company is positioned to sustain dividends and accelerate investments.
Newmont has a strong asset base with 96 million ounces of proven reserves. With investment in exploration activity, reserve replacement has remained strong. The company expects to deliver steady production through 2040.
Therefore, even if gold trades around $2,000 an ounce, Newmont will report robust free cash flows. The company expects to lower the all-in-sustaining cost in the coming years. If gold trends are higher, meaningful EBITDA margin expansion can be expected.
Ford Motor (F)
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Among the traditional automakers, Ford (NYSE:F) looks attractive among stocks to buy and hold. Ford has aggressive plans for the transformation of its portfolio towards EVs, and that’s likely to create value.
F stock trades at an attractive forward price-earnings ratio of 6.8 times and offers a dividend yield of 3.7%. The downside is capped from current levels, while the upside potential is meaningful.
Talking about EV plans, Ford expects to deliver a global capacity of 600,000 EVs by the end of 2023. Further, the company expects 40% to 50% of its global vehicle sales to be EVs by 2030. The company has also been investing in building battery plants to ensure that the supply chain remains smooth.
An important point to note is that Ford reported a total liquidity buffer of $49.2 billion as of Q3 2022. With positive free cash flows, the company has ample financial flexibility to make big investments for portfolio transformation.
On the date of publication, Faisal Humayun 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.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.