Of all the ways to make money as an investor, perhaps the most rewarding is buying a stock when it is young and then holding that stock for a very long time, while it grows, and grows, and grows, bringing you profits topping 100%, 500%, even 1,000%. At Cabot, we call these forever stocks.
Most experienced investors can easily name stocks that they wish they still owned—stocks that have doubled many times over the years. These include not only today’s well-known winners like Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL) and Netflix (NFLX), but also stocks that were previously hot and are bigger and growing more slowly now, like Carnival (CCL), Cisco (CSCO), Disney (DIS), Home Depot (HD) and Microsoft (MSFT).
But most investors who once owned these stocks don’t own them anymore.
So why are so few investors able to hold winning stocks long-term?
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It may be because they get nervous about short-term concerns. Or because they lack conviction. And often, because they become seduced by other stocks, and sell their old winners for modest profits instead of hanging on for the bigger, longer-term payoff.
And then, years later, they often wake up and say, “I wish I’d held onto those shares.”
So, today, in an effort to get you on board the market’s NEXT big winners, I’m updating a series that I wrote last year, giving you a list of stocks you can buy with the intention of holding forever.
How to Find Forever Stocks
But note this—the goal of this article is not to identify forever stocks that can give you a modest long-term return, like Johnson & Johnson (JNJ) and DuPont (DD). Those stocks are fine for conservative investors working to keep their wealth, but my goal is to identify stocks that can make you rich!
I want to identify the next AMZN, the next AAPL, the next GOOGL and the next NFLX.
The key attributes I look for in forever stocks are these:
A product or service or business model that is revolutionary.
A product or service or business model that serves a mass market.
A company that’s still small enough to grow rapidly for many years.
A company that is not respected—perhaps not even known—by most investors.
Last, but not least, I look for a chart that shows that other investors have begun to recognize the company’s potential; that tells me that my thinking is on the right track.
So, today, as the broad market works to recover from the recent correction, I have a stock in mind that I think can be bought and held for a very long time. It is not guaranteed to succeed—there are no guarantees in investing—but in the long run, the odds look very good indeed.
The following is one of my favorite forever stocks to buy today:
Best Forever Stocks: Autohome (ATHM)
Autohome (ATHM) is a Chinese stock that came public in December 2013, so if you haven’t heard of it yet, you’re in the majority.
But the company’s potential for growth is huge, which is why it passes muster as a stock that could become a huge winner in the long run.
Autohome’s vision is simple—and big. Its goal is to become the dominant player in China’s online automotive advertising market. And its strategy for achieving that is simply to provide automotive shoppers with everything they want to complete the car-buying experience.
Today, the company’s business is centered on two websites, www.autohome.com.cn and www.che168.com. (You can look at these websites and have Google translate them into something resembling English.) Autohome began operations in 2004, and is already the leading online destination for automobile consumers in China.
But in the future, the sky’s the limit because the Chinese automobile market, though still rather young, is already bigger than the U.S. market and has much further to go.
Autohome’s revenues come mainly from dealers (more than 20,000 use its services), and are generated by three segments: media services (ads and professionally produced editorial content), lead generation services, and an online marketplace (Autohome Mall) where consumers can complete the car-buying experience.
Mobile has obviously been a big focus, too—in the latest quarter, visitors who used the company’s primary application rose 29% from the prior year. Additionally, there’s rapidly growing content in the Virtual/Augmented Reality area. And going forward, management is excited by the potential of its 2018 strategic expansion, which is code-named “Four Ways to Eat One Fish.” Intriguing!
In the latest quarter, revenues were $269 million, exceeding the upper end of the company’s guidance, while earnings were $1.00 per share, up 82% from the year before. Earnings have grown at an average rate of 39% over the past four quarters.
ATHM came public at 17 in late 2013, got off to a great start and was at 57 in the middle of 2015. But then the Chinese stock market fell apart (as did most emerging market stocks), eventually driving the stock down to 19 in late 2016—all despite steady increases in sales and earnings. Since then, though, the buyers have been in control, and the stock has been working its way steadily higher, with the longest correction being a 17-week consolidation phase late in 2017.
Thus, Autohome (ATHM) is a good growth stock to buy now. But my focus today is on buying the stock and holding “forever,” so I’m more concerned with ATHM’s potential over the long haul. Long term, I’m very bullish on both the stock and the company, and I think that buying now will work out very well in the years (hopefully decades) to come.
Note: If you’d like the inside track on other Chinese stocks with great growth potential, I strongly recommend that you take a look at the recommendations in Paul Goodwin’s Cabot Global Stocks Explorer. To learn more, click here.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More