1. EOG Resources (EOG)
by Matthew Stephani
While recent headlines have focused on the energy downturn, I believe long-term macroeconomic factors will push energy stocks up over time. Investors with a 10-year time horizon have a once-in-a-decade opportunity to buy great energy companies at a significant discount.
I believe EOG Resources (EOG) is set to emerge as the next great American energy company. EOG has top-notch management with experience in nearly every major U.S. resource play. It’s a technology leader with ever-improving recovery rates in the Eagle Ford, Permian and Bakken. The company’s resources in place are enormous and EOG will continue to increase its recovery rate over time. And the company is focused on generating strong returns on invested capital and not just growth for growth’s sake.
I believe the recent disruption in the energy market will reverse itself in the coming years, because energy is the backbone for economic development, and we are on the cusp of the largest industrialization of developing nations the world has ever seen. With the continued and eventual industrialization and urbanization of China along with India, the Far East, and Sub-Saharan Africa, the demand for energy is set to grow exponentially. In addition, in a world with over 1.2 billion citizens lacking direct access to electricity and where transportation needs are increasing astronomically, demand for electrical generation and transportation fuels in all their forms is a secular growth market.
Today, the oil market is oversupplied by about 2 million barrels per day, or about 2%. That has led to investor hysteria and massive price decline in the price of oil and oil-related equities. But this is also a great buying opportunity for long-term investors, as EOG Resources currently trades near its lowest price of the past two years.
Matthew Stephani is equity portfolio manager of Cavanal Hill Investment Management with $6.9 billion under management in Tulsa, Okla.
2. Visa (V)
by Peter W. Tuz, CFA
Picking a stock to hold for 10 years is always difficult but my choice today would be Visa (V-NYSE), the global payments processor and the key toll taker in the world’s payment system.
No matter what shape the global economy is in 10 years, there will continue to be a need for a payment system, a way to move money from consumer to producer and seller in a secure, cost-efficient manner. Over the past few millenniums, the world has moved from barter to coin, coin to cash, cash to check, check to card and card to digital. Cash continues to be used in half of all transactions, especially smaller ones. This is rapidly changing, half of all Visa’s transactions are now debit cards.
With Visa you have a company with size, global reach and technological prowess. The company was formerly owned by its bank customers but has been publicly held since 2008. Since that time its revenues have doubled and its earnings per share have grown five-fold. We look for low to mid-teens revenue and earnings growth for the next decade. The company has no debt and yet achieves a return on equity in the 20% range. By today’s measures, Visa may look expensive at about 24 times next year’s earnings, but at its current pace, the company will be earning $10 per share in 10 years suggesting a stock that could double or triple over that time frame.
Peter W. Tuz, CFA, is president of Chase Investment CounselCharlottesville, Va. with $400 million under management.
3. United Technologies (UTX)
by Michael K. Farr
We seek to find long-term value by investing in leading companies in industries with attractive secular growth prospects. We favor companies with great long-term track records, strong management, conservative balance sheets, higher returns on capital and sustainable cash flow. Often times, this means we are buying out-of-favor companies that are trading at a discount to intrinsic value as a result of near-term issues that other investors are unwilling to overlook. One such opportunity could be United Technologies (UTX) – a large and diversified industrial company specializing in aerospace and building systems.
Under new CEO Greg Hayes, United Technologies stock has continued a downward trend that has been ongoing for a couple of years. The stock’s weakness can be attributed to a number of factors, including setbacks in its jet-engine development projects, a dramatic construction slowdown in China, turmoil in Europe, and a strong dollar.
At its current valuation of about 13 times the (depressed) consensus estimate for 2016, though, the market is assigning very little value for an eventual recovery in the company’s end markets. We think this assumption is far too pessimistic given that future global gross domestic product growth will rely heavily on the products and services that United Technology offers.
Michael K. Farr is president of Farr, Miller & Washington, LLC in Washington, DC with more than $1 billion under management.
4. Stericycle (SRCL)
by Christian Greiner
Investors should look for companies where industry dynamics lead to opportunities, no matter what the broader market is doing. Stericycle (SRCL) has been one of these names in the past, and should be in the future. Since 2000, the company has grown earnings per share and revenues at a rate higher than the broader market. Its management has been adept at three things: growing the business that they already have, acquiring competitors, and identifying new lines of business.
The medical waste disposal space still has room to consolidate in both the U.S. and overseas, and Stericycle has been busy on both of those fronts. No longer content to be just a van that picks up needles and medical waste, the company now offers compliance training and communication solutions for doctors’ offices as well. Stericycle also just bought Shred-it, a leading document disposal provider, which gives the company another separate business line with great cross-selling opportunities. This kind of clear path to earnings growth make it a great stock for the long run.
Christian Greiner is portfolio manager of Azzad Ethical Fund (ADJEX) from Azzad Asset Management in Falls Church, Va. with $400 million under management.
5. Vodafone Group PLC ADR (VOD)
by Mark Blair
I am adding Vodafone Group PLC ADR (VOD) to my buy-and-hold portfolios. The total return of this provider of mobile telecommunications is -0.05% year-to-date with a 12-month yield of 5.3%, according to Morningstar. For the S&P 500, the comparable total return figure is -4.21%, for Verizon, -1.50%. Verizon’s 12-month yield is 4.95%. At 9.9, Vodafone’s price-to-earnings ratio is about half that of Verizon’s (VZ) at 18.5. The stock prices of both companies are down about 15% from their high water marks within the last 12 months.
Vodafone is a great long-term investment because it has 446 million wireless customers in more than 25 countries, with India and Africa comprising about one third of total revenue, according to Value Line. Verizon has 109.5 million U.S. retail wireless connections and negligible international presence. Domestic wireless is 69% of Verizon’s total revenue. Verizon has done an admirable job of capitalizing on wireless growth in the U.S. and has many fine prospects. However, my bet is that Africa, India and the rest of the world will realize stronger wireless growth for Vodafone over the long haul than Verizon will in our relatively saturated domestic market.
Mark Blair, president of Blair Wealth Management in Newtown Square and Radnor, Pa. with $22 million under management.
6. Samsung Electronics (OTCMKTS:SSNLF)
by Adam Strauss, CFA
Samsung enjoys a leading market share in many of the markets in which it operates. The company has roughly a 20% global market share in smartphones, ahead of the next largest company Apple at 12%.
Perhaps more importantly, Samsung holds a nearly 50% global market share in the DRAM memory market and a 40% share in the NAND Flash memory market. The barriers to entry within these industries are much higher than that of the smartphone business and semiconductor products that now account for nearly half of Samsung’s profits.
The company also has a great balance sheet with net cash and investments. This characteristic along with the company’s sheer size allows it to outspend competitors on research and development as the company works to develop new products and markets. Finally, Samsung is trading at book value right now, a valuation previously seen during only the Asian financial crisis, and is,, the cheapest large-cap stock in the world at the present moment.
Adam Strauss, CFA, is co-portfolio manager of Appleseed FundChicago, Ill. with $204 million under management.
7. Liberty Broadband (LBRDK)
by Rahul Ray
In this environment, owning high quality franchise businesses managed by owner/operator management teams could produce superior risk/adjusted returns over the long-term.
One such security is Liberty Broadband (LBRDK). Liberty’s value is primarily derived from a cable company, Charter Communications (CHTR). Charter operates in markets where it faces almost no competition from fiber making it a de-facto monopoly. The cable industry is a highly attractive recurring cash flow business. With the exponential growth in internet traffic, consumers increasingly view their cable internet service as a utility-like “must-have” product making cable recession-resistant.
Charter is an under-earning business with tremendous potential to improve. For example, Charter has only around 50% market share in its footprint which is far too low for a business with no real competition. Charter’s expenses on programming rights (what they pay media companies to transmit the TV channel) is 30% higher than the cable industry average, on a per subscriber basis, and their capital expenditures and service costs are significantly higher than cable industry averages. These expenses will continue to trend down as Charter winds down its investments.
Charter has the best management team in the cable industry, with Tom Rutledge and Chris Winfrey. Charter is backed by John Malone, who owns 26% of Charter via LBRDK (more on this below). Warren’s Buffett’s Berkshire Hathaway is also a major shareholder.
If Charter’s business develops the way we expect, it could be generate more than $30 per share in free cash flow, in five years. At 10-15 times multiple, which is a very conservative below-market multiple, Charter stock could be worth $300-$450 or 62%-145% higher than its current price.
While Charter presents a terrific investment opportunity, we can own Charter even cheaper by owning Liberty shares, which are trading at a large discount to their net asset value (NAV). Liberty is owned and managed by John Malone and Greg Maffei, arguably the best investors/capital allocators of our generation whose interests are aligned with shareholders.
Rahul Ray is principal and portfolio manager of Burr Capital LLCin Edgewater, N.J. with just under a million under management.
8. Starbucks (SBUX)
by Adam Sarhan
The big thesis for 10-year picks/calls is to look at major trends that are occurring in the world that are not tied to montetary or fiscal policy. Literally, the biggest trend out there is global population growth. Latest studies show that the world’s population is expected to surge over the next few decades. One way to capitalize on that trend is to see which companies are universal and offer a product that will always be in demand.
Coffee is an affordable luxury and people love coffee and in most cases people are literally addicted. Starbucks (SBUX) is the global leader in the coffee business and is very well positioned to capitalize on global growth. Everyday, thousands of new people are entering the middle class and Starbucks is one of the first luxuries they “enjoy.” Starbucks recently entered the tea business and is well positioned to dominate that space as well, offering another huge profit center for the coffee power house.
Starbucks will continue to innovate in the years ahead. It offers the best product and is doing a great job leveraging technology to further connect with their customers. They continue to sport very strong sales and earnings growth on both a quarterly and annual basis. They are sitting on $4 billion in cash and are the premier brand in their space.
Furthermore, the public considers coffee and tea “healthy” which makes them the only “healthy” drug on the planet. Unlike tobacco and alcohol (unhealthy drugs), Starbucks offers a great product that is socially accepted. It is well positioned to grow over the next decade as it monetizes and grow the tea business and continue to expand the core coffee business. The products are recession proof because people can “justify” spending $3 on a cup of joe if they are “cutting” back on other “luxuries.”
Adam Sarhan is CEO of Sarhan Capital.
9. Physical Platinum and/or Platinum Group Metals (PLG)
by Peter Leeds
My top trade for the coming decade also acts as insurance against global conflicts, and protection from inflation and widespread money debasement worldwide. Specifically, that investment is platinum, which can be played to great effect ideally through physical metals purchases, or alternatively via investments in related mining stocks. (Avoid platinum exploration companies, and focus on producers with reserve life indexes of at least 10 years and excellent financial positions).
Historically, platinum prices are twice that of gold, but right now platinum is only about 80% of the price of gold. But patinum is 30 times more rare than gold. Yearly platinum production is only 6% of annual gold production. Yet platinum has more industrial uses than gold or silver. Half of yearly production is consumed by industrial needs: silicone, fuel cells, air bags, dentistry and laboratory equipment, chemotherapy treatments, and many others.
There are only six million ounces of platinum mined and brought above ground worldwide. Precious metals prices are poised for a significant increase and platinum will be the greatest beneficiary of the precious metals group. And unlike a business which can go bankrupt, platinum is a commodity that will never lose all of its value. Sentiment is very low toward precious metals right now, leading many analysts to call gold one of the most “unloved” investments. Typically, purchasing assets when there is minimal interest is a profitable strategy, especially when discussing a long-term horizon as we are here.
In addition, sentiment is a contrarian indicator. For example, the more people expecting a stock market crash, the more likely that we are at a bottom, and in for a move higher. Sentiment towards precious metals is very low right now, as can be seen by price declines and common global knowledge surrounding issues such as weakness in China, South America, and Europe. As events get “baked into the pie,” so to speak, commodities suffer from capitulation (investors unloading their positions at any price), which always becomes the perfect point to buy a position.
We have also seen significant U.S. dollar strength, which makes the prices of commodities purchased in US dollars proportionately less expensive. It takes fewer dollars to buy the same ounce of gold, for example, which appears as though the commodity has fallen in price. Technically it has, in U.S. dollar terms, but at the same time the same precious metal is actually more expensive in many nations worldwide.
My expectations are also for inflation to arise, which makes all precious metals more popular as a store of value. In fact, all the currency debasement and money printing nations all over the world have been engaged in over the last few years actually is the definition of inflation. The U.S. dollar has lost over 95% of its purchasing power since 1913, and that trend has been accelerating very much since quantitative easing began a few years ago.
Ideally, investors should purchase physical platinum. I would not suggest owning any platinum-related ETFs. If individuals prefer stocks, Platinum Group Metals (PLG, NYSE) is one example for a long term hold, but there are numerous issues with any vehicle which trades publicly, which are not risks for commodities.
Platinum Group Metals (PLG) has $98 million in cash, $658 million in assets, and only $24 million in liabilities. Numerous developments are advancing on schedule which will help take PLG from explorer to producer.
Peter Leeds is the CEO of Peter Leeds, Inc. in Toronto, Canada and Raleigh, N.C.
10. Berkshire Hathaway (BRK.B)
by Robert R. Johnson, PhD, CFA, CAIA
My favorite stock pick for the next decade is Berkshire Hathaway, a firm that I believe is significantly undervalued at current levels. In the recent downturn, Berkshire is nearing the 1.2 times book value that Warren Buffett has indicated he would consider repurchasing shares.
Those who fear a post-Munger, post-Buffett Berkshire are misguided. The firm is largely a conglomerate of wonderful operating businesses and is less reliant on the stock picking prowess of Buffett and Munger. Terrific management is in place with Ajit Jain, Todd Combes and Ted Weschler. I think the firm is in terrific shape for the next ten years and beyond. Berkshire is a “buy it and forget it” holding.
Robert R. Johnson, PhD, CFA, CAIA, is president and CEO of The American College of Financial Services in Bryn Mawr, Penn.