Last week I kicked off this series of Forever Stocks with an introduction that explained exactly what I mean by that term.
If you missed it, keep reading. If you’ve already read it, feel free to read it again—or skip directly to today’s featured stock.
Why Invest in Forever Stocks?
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%.
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Most experienced investors can easily name forever stocks that they wish they still owned—stocks that have doubled may times over the years. These include not only today’s big winners like Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Tesla (TSLA) 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?
Because they get nervous about short-term concerns. 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 that stock.”
So, this series of five weekly posts featuring stocks that you can buy with the intention of holding forever is designed to help you do just that.
But note this—the goal of this report is not to identify 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!
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 that serves a mass market
- A company that’s still small enough to grow rapidly
- A company that is not respected—perhaps not even known—by the majority of investors.
- Last but not least, I look for a chart that shows that other investors have begun to recognize the company’s potential as well; that tells me that my thinking is on the right track.
For the record, stock #1 was Autohome (ATHM), the Chinese company working to be the center of all consumer-oriented automobile information in China.
And stock #2 is…
Forever Stock #2: Zillow (Z)
(Note: These forever stocks are not in alphabetical order. Instead, each week I’m highlighting the stock that’s at the best short-term buy point.)
Zillow is the world’s largest online organizer of real estate information, with data on more than 110 million homes in the U.S.
Some of these homes are for sale, some are for rent, and many are listed just for comparison. And the data is free to people like you and me!
What did we do before Zillow?
We bought newspapers, and were limited to reading the tiny print of local listings. Or we picked up free real estate magazines and perused the glossy photos.
But with Zillow, you can look at real estate anywhere in the U.S. You can drill deep, you can scan broadly, and you can investigate mortgage rates—all for free!
Zillow gets its money from real estate agents, who have found over the past decade that if they don’t pay Zillow to get their homes shown to house-hunters, they miss out on a lot of valuable leads. And the business, now 13 years old, is still growing fast.
In 2015, Zillow acquired its biggest rival, Trulia, and revenues grew 98% to $645 million. In 2016, they shot ahead another 31% to $847 million. And in the first quarter of 2017, they grew 32% to $246 million. So growth is not a problem here.
As for earnings, Zillow is finally starting to ramp up, with the bottom line expected to total $0.47 per share this year and $0.90 per share next year.
Zillow came public at 20 in July 2011, and topped 60 in its first week. But six months later it was back down to 21.
In the three years that followed, the stock trended generally higher (sometimes with high volatility), peaking at 57 in July 2014 on news of the possible Trulia merger. But the year that followed wasn’t kind to Zillow, as the stock dipped all the way to 16 in early 2016.
A month later, however, the company did a three-for-one stock split, selling Class A shares under the ticker symbol “ZG” and non-voting Class C shares under the old “Z” ticker symbol. Basically, all Zillow shareholders received two Class C shares for every share of Class A and B stock they owned (hence, the 3-for-1 split).
It’s confusing, but the most important point is that Z is the more liquid, well-traded stock. And since the split, Z has done generally well. It was a leader during the market’s spring advance in 2016, rallying as high as 40, and it’s since gone mostly sideways, building a long and strong base in the high 30s.
Technically, a base like this is a very promising pattern, and the promise began to be fulfilled when Z broke out above 40 (into new high territory) in early May, thanks in part to an excellent first-quarter report. The first surge took the stock as high as 44 just two weeks ago, and that was followed by a pullback to 40—which is now acting as a support level. I think buying anywhere between here and 40 will work out well in the short term.
But this is a list of stocks to buy and hold “forever,” and long term, I’m very bullish on both the stock and the company. I think if you buy some and simply hold it, you could see some fine rewards in a decade or two.
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