2 stocks I never sell

Master investor Warren Buffett’s favorite holding period is forever. Let your winners run and give your struggling investments time to get back on track, he argues. Thanks to the magic of compound returns, time and patience are an investor’s best tools. And the more you believe in a company, the longer you’ll want to own its stock.

So when I buy a new stock, I generally aim to hold it for at least several years. A handful of stocks in my portfolio have earned lifetime seats next to me. I have come to know these companies well over the years, and I am confident that they will deliver business results and shareholder returns that will outperform the market over the very long term. I could sell a few heels here and there if I need the cash, but I am not closing these positions for the foreseeable future.

For me, this exclusive club has six members so far. Today I will show you why I intend to own Roku (NASDAQ: ROKU) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) forever, for all intents and purposes.

Image source: Getty Images.

How to find a long-term winner

Alphabet and Google’s parent Roku have a few crucial attributes in common:

  • Both of these companies are both willing and able to move with the times, entering new markets as the business landscape takes on a new shape.
  • Until the environment changes shape, they cater to consumer markets globally with tons of untapped growth to explore.
  • Their pursuit of large-scale growth can easily be seen in their financial results. Alphabet’s revenue has grown at a compound annual average rate of 23% over the past five years. During the same period, Roku’s revenue grew by 41% annually.
  • These are awesome ATMs. Alphabet turned 26% of its 2021 revenue into free cash flow. Roku’s cash profit margin has reached 10.6% for the past four quarters.
  • Their balance sheets are rock solid, with ample cash reserves and limited long-term debt.

It is true that equities also share some unfavorable qualities. Alphabet’s stock is quite expensive, and Roku has settled into the nosebleed section of Wall Street. Their valuations range from tough to high, even though equities have seen a market-wide pullback from growth-oriented investments in recent months. Alphabet shares have traded exactly sideways over the past six months, while Roku shares have fallen 55%. Many investors avoid buying stuck or falling stocks because they don’t want to be hurt by a falling knife.


GOOGL data by YCharts

What’s next for Alphabet and Roku

The bullish points listed above are more than enough to outweigh my concerns about high stock prices and negative chart patterns. In the long term, I expect Alphabet to become a multi-talented tech conglomerate with decades of staying power. Long after we’ve all ditched Google searches and Android phones, we’ll be using Alphabet products and services to meet needs we haven’t even heard of yet. Likewise, Roku could eventually stop streaming content produced by other companies and become an entertainment titan in its own right.

It’s the kind of open business attitude it takes to stay relevant and thrive for a very long time, regardless of any unexpected challenges that may arise along the way. Roku and Alphabet have this essential property in spades. And so the mathematical wizardry of annual gains multiplied tens of times can take full effect, and I want to make sure that I own these very long-term sustainable tickers.

You can also do your own research

Your analysis may differ from mine, and your investment goals are probably not quite the same either. It is very good. Whether or not you agree that Alphabet and Roku are perfect models for flexibility and long-term growth, you can apply the same thinking to other businesses in your own wheelhouse. Invest in the stocks you expect to hold and grow over the next two decades, based on your own research, and watch the game-changing stock returns. And it’s okay if there are speed bumps and slowdowns on this long road to riches, because successful investing is more like a marathon than a sprint.

Alphabet and Roku are two of the few stocks that work for me. You are free to follow in my footsteps or find your own long-term winners. Either way, your best Warren Buffett impression requires an eye for high-quality business and a ton of patience. This is how you build real wealth in the stock market.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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