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Long-Term Stock Picks


mcliu
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If you could only hold 3 stocks in your entire portfolio and you have to buy and hold for 15 years, no trading.

What would you own? And what kind of returns would you expect?

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Brk, AAPL, ATD.B (alimentation couche tard, Canada)

at a lower entry price I would have MSFT, COST and SHOP in the mix. At actual price I’m happy with the 3 mentionned for 12% CARG

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MRK looks pretty solid to me. Low valuation and basically a Greenblatt stock. Organon spin-off could unlock some value. There are some warts in terms of Keytruda going off patent late this decade and the constant amortization expenses resulting from taken out smaller biotech to refresh their pipeline , but even considering all this, the stock sees like a good bet from current levels.

LMT is another one that I think will do OK over the long run.

AMZN is a growth stock that isn’t really overvalued and I think an expansion into health care which is slowly happening could create a lot of value.

Edited by Spekulatius
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Long-term buy-and-holds for me are CASH, HQI.   Smaller-caps with unique business models in very competitive industries but run by exceptional mgmt teams.  They've already run up a lot since last summer, though, so may not go anywhere in terms of price near-term. 

Share price of these two can be volatile so expect severe draw-downs every once in awhile (especially CASH).  Also keep in mind HQI did a reverse merger of the old CCNI (Command Center) in order to go public and changed the ticker to HQI, so ignore the stock chart before mid-2019-ish.

wabuffo

 

Edited by wabuffo
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I like the prospects for CNSL.  I think the valuation is good (watch for coming dilution though).  Unfortunately, don't have time to write up all of my reasoning.  I see this in sum as as company that alienated its entire investor base by breaking a promise to keep dividends.  Investors ran, management struggled with an acquisition, share prices hit rock bottom and now much-needed capital is flowing in from private equity, along with some new management.  The company has potential to post improved fundamentals and court a new investor base. 

I should note that I am presently long CNSL.

 

Edited by market malocclusion
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Great question.

BRK (50%) FFH(30%) AAPL (20%).  

Berkshire will likely provide acceptable returns from this point, especially with buybacks now a meaningful opportunity fo capital allocation.

Fairfax  makes the list for me for providing an emerging market basket, in particular India

Apple, if health turns out to be their “greatest contribution to mankind” then they deserve a place.  Lower % because of exposure via Berkshire

 

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10 hours ago, market malocclusion said:

I like the prospects for CNSL.  I think the valuation is good (watch for coming dilution though).  Unfortunately, don't have time to write up all of my reasoning.  I see this in sum as as company that alienated its entire investor base by breaking a promise to keep dividends.  Investors ran, management struggled with an acquisition, share prices hit rock bottom and now much-needed capital is flowing in from private equity, along with some new management.  The company has potential to post improved fundamentals and court a new investor base. 

I should note that I am presently long CNSL.

 

When you get a chance to start the separate CNSL thread, it will be good to understand your reasoning on how you are trusting CNSL to act in your best interests so much to lock in your money for 15 years when it has a history of diluting your holdings by obscene amounts in the middle of the pandemic when it was supposedly at a low price to get in.

See https://lufax.q4cdn.com/131964560/files/doc_financials/2020/ar/2020-CNSL-Annual-Report-10K-Shareholder-Ltr-color-final.pdf, Page 29:

Quote

 

On September 13, 2020, we entered into an investment agreement (the “Investment Agreement”) with an affiliate of Searchlight Capital Partners, L.P. (“Searchlight”). In connection with the Investment Agreement, affiliates of Searchlight have committed to invest up to an aggregate of $425.0 million in the Company. The investment commitment is structured in two stages. In the first stage of the transaction, which was completed on October 2, 2020, Searchlight invested $350.0 million in the Company in exchange for 6,352,842 shares, or approximately 8%, of the Company’s common stock and a contingent payment right (“CPR”) that is convertible, upon the receipt of certain regulatory and shareholder approvals, into an additional 17,870,012 shares, or 16.9% of the Company’s common stock. In addition, Searchlight will receive the right to an unsecured subordinated note with an aggregate principal amount of approximately $395.5 million (the “Note”). In the second stage of the transaction, Searchlight will invest an additional $75.0 million and will be issued the Note, which will be convertible into shares of a new series of perpetual preferred stock of the Company with an aggregate liquidation preference equal to the principal amount of the Note plus accrued interest as of the date of conversion. The Note may be issued to Searchlight prior to the closing of the second stage of the transaction upon the occurrence of certain events. The Note bears interest at 9.0% per annum from the date of the closing of the first stage of the transaction and is payable semi-annually in arrears. Upon conversion of the Note, dividends on the preferred stock will accrue daily on the liquidation preference at a rate of 9.0% per annum, payable semi-annually in arrears. In addition, following shareholder approval, if received, the CPR will be convertible into an additional 15,115,899 shares, or an additional 10.1%, of the Company’s common stock. Upon completion of both stages, the common stock and CPR issued to Searchlight will represent approximately 35% of the Company’s common stock on an as-converted basis

 

 

 

 

 

 

Edited by LearningMachine
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This is a really hard question to get right. 

If memory serves right, Snowball mentions Buffett playing this game as well. If we compare his record between his 2000 and 2020 letters, looks like he didn't do too well on this game either:

  • American Express: $8.329B to $18.331B, for annualized return of ~4%, excluding dividends
  • Coca Cola: $12.188B to $21.936B, for annualized return of ~3%, excluding dividends
  • Wells Fargo: $27.844/sh to $30.18/sh, for annualized return of ~0.4%, excluding dividends

I'm thinking he probably didn't too well on these because he didn't want to sell as he had to pay 35% tax on capital gains, which would have left only 65% of the capital gains to invest in something else.  Selling and reinvesting would have required a higher return to get to the same amount in 2020. 

Another reason I'm thinking is that looks like he has been investing while worrying about 1970s style inflation kicking in any time and thus has been focusing on Pricing Power and Return on tangible assets/Return on Equity, and so far, high inflation just hasn't kicked in.  Also, he probably wasn't able to foresee the impact of GFC and reputation-hit on Wells Fargo.  Also, Coca Cola lost some of the pricing power to oligopoly of retailers, which he probably couldn't foresee in 2000.

On the other hand, he nailed it with BNSF, where he was able to see it owns rights to scarce physical pathways that are cashflowing well, and that he'll be able to monetize higher not only because of inflation but also because of more and more goods needing to be transferred through those scarce pathways, causing access to be given to highest bidding customers. 

Looking 15 years from now, I think probability is higher than last 20 years that inflation will finally kick in with minimum wages going up.   With high inflation, high probability that interest rates will probably go back up to historical norms.  You all know which stock I'm talking about here.

We'll see in the May 13F, but I wonder if he is thinking rights to cash-flowing scarce licensed spectrum can also be monetized higher not only due to inflation but also as our economy becomes more and more digital & mobile, with more and more end-points needing access to scarce wireless pathways, which will cashflow best in the right entity's hands, which can give access to highest bidding customers.  It is similar to if you could buy a big percentage of the road network before cars became ubiquitous.  You all know which stock I'm talking about here.

Even though Buffett wasn't super-successful at this game over the last 20 years, I still think he is probably better than any of us at this game as he has been playing it for decades.  

So, nothing big to share here as you could all see this already in Buffett's annual letters and BRK filings.

Edited by LearningMachine
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Posted (edited)

Thanks, really interesting responses!

I thought it was a good exercise because when I did it, the types of investments that I looked for was much different from my usual set of ideas.

There's less focus on valuation and one-time business improvements and much more emphasis on growth, business quality, competition/disruption/longevity and capital allocation. 

The 15Y total returns for AXP/KO are decent when you include dividends. But LearningMachine is right, it is a very difficult question to answer, even for a master like WB.

image.thumb.png.254b033ebe03fcc63234bb259c39c3c7.png

Edited by mcliu
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If people are allowed to pick BRK with a extra dose of AAPL, then surely I can pick a couple of ETFs.

MSOS - I don't know who the winners will be in the U.S cannabis market, but there will be winners.  One of the rare opportunities where retail investors can get in before institutional money.  

SIL - Silver miners should benefit from the coming onslaught of battery, solar panel, and electric grid investments.  Silver mine production is slowly declining and we are likely near an upward inflection of industrial demand.  At current spot price it is not economical to open up silver only mines.  A lot of silver is currently mined as a byproduct of mining for gold or other more valuable metals.  If the price does go up it will take years to bring new production online.

IMLP - I don't own this one, but I feel like sticking with the ETF them.  I own individual pipeliners with heavy NG exposure.

 

Edited by JRM
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Forget trying to pick winners/losers, one exercise I always found interesting was simply trying to determine which businesses would still be around in 20, 30 years (and not as a shell of themselves). If you can do that, just bUy tHe DiP as they say.

Edited by LC
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I don't have names for you but have some considerations. 

First of all...over a horizon that long, the returns on the stock should approximate the core returns of the business with valuation not really a big factor. That should widen the set of names that one would consider. 

Secondly, business life cycles have shortened materially since the 70s/80s so it ideally has to be a slowly changing industry or if not ..it has to be led by a team/executives who can keep reinventing the firm in each new cycle (e.g. Samsung of the past or the IBM of the past).

Thirdly, the extent of fiat debasement that is happening in the world at present (or since the great recession) makes me really wary of anything barely generating mid single digits in core compounding. So it would have to be something able to grow better than that. Ideally, one that keeps pace with this debasement/inflation.  

Lastly, there has to be an element of antifragility in the business as the world has been in a state of long (relative) peace for over 70 years. Whether it is war or a super pandemic or something else that is an unknown unknown or known unknown, the business has to be able to survive an extended period of dislocation. It better have some strong cushions built in. 

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On 4/4/2021 at 12:25 PM, wabuffo said:

Long-term buy-and-holds for me are CASH, HQI.   Smaller-caps with unique business models in very competitive industries but run by exceptional mgmt teams.  They've already run up a lot since last summer, though, so may not go anywhere in terms of price near-term. 

Share price of these two can be volatile so expect severe draw-downs every once in awhile (especially CASH).  Also keep in mind HQI did a reverse merger of the old CCNI (Command Center) in order to go public and changed the ticker to HQI, so ignore the stock chart before mid-2019-ish.

wabuffo

 

I read a VIC write-up on HQI and came away impressed (no position yet): https://www.valueinvestorsclub.com/idea/HIREQUEST_INC/4304209460. Surprised this hasn't been discussed more on the forums.

Strong operating margins, insider ownership, and capital allocation to date. How do you feel about valuation? Valuation still seems reasonable to me, but always tough to pull the trigger after such a big run-up over the past few months.

 

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Start a new thread on HQI and I'd be happy to opine.  I am impressed with the business model where they hold the total AR for systemwide franchise sales and then remit payroll to the individual franchise branches.   They just made two decent-sized acquisitions and their core business slowed down due to COVID's impact on temporary labor.  I think their earnings will ramp up as more outdoor venues open up where they get some of their temp labor demand and they convert their acquired businesses over to the franchise model.

I originally bought it as a special situation during HireQuest's reverse takeover of CCNI because they were doing a large $6 tender to get their ownership over 50% control.  But the closer I looked at the pro-forma numbers, the more I thought the HQI mgmt was lowballing the numbers to get people to tender and the more I liked the mgmt and the business.

wabuffo

 

Edited by wabuffo
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Great question. Noticed a lot of BRK as part of the allocation - is there no management risk in the future? Not wishing ill on anyone but Warren Buffet and Charlie Munger may not be around for the full 15 years, Berkshire has not gone through a transition in its current form.

For me its MSFT, DIS and TCS (Tata Consultancy in India). No idea of what the returns would be, but I am pretty confident they wont be anything like the last 15 years so will be happy with high-single digits.

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