- John W. Ballen
- MFS Emerging Growth Fund
Pick: Oracle
John Ballen doesn't mind holding stocks for a decade. His top pick for the next decade is a stock that has been in his portfolio since 1990.
''Oracle is a stock we have owned for 10 years, so it would be a 20-year hold,'' he said.
Mr. Ballen, who manages the $19 billion MFS Emerging Growth fund, has fairly basic criteria for buying and holding a stock. ''You want a company with a dominant market position, a company a number of other companies are betting their future on,'' he said. ''You want a company with great cash flow and a stable balance sheet in a high growth market. And you want management that can execute.''
Which brings us back to Oracle, a company that Mr. Ballen says is ''morphing into the software company of the Internet.''
''They are already emerging as the software company on the Internet,'' he said, noting Oracle's success in providing databases, applications and business-to-business transaction sites. ''And that is going to be a place you want to be for the next 10 years.''
Oracle is scarcely a secret to most investors. The stock is selling at about 125 times next year's earnings. But the lofty valuation shouldn't be a problem, said Mr. Ballen, whose fund had an annualized rate of return of 24.9 percent during the 1990's.
''By traditional measures, the stock is not cheap,'' he acknowledged. ''But if you are looking at a 10-year hold, the current valuation parameters won't matter. If their earnings can grow significantly, the multiple will be far less'' in 2010.
- Laszlo Birinyi
- Deutsche Bank
Pick: Nokia
For a stock to stay in his portfolio for 10 years, said Mr. Birinyi, a bullish global trading strategist, it must represent a stake in a company that thinks, well, globally.
A company's ''outlook on the world is important,'' he said. ''Managements change. But you want to find companies who may not yet be part of the global village, but who will be. That means identifying companies with products based on concepts that can travel.''
In his view, Nokia, the Finnish maker of cellular phones, fits the bill.
''These people have the ability to come out with new products,'' he said of Nokia. ''In Europe, cell phones are almost as ubiquitous as car keys. As the third world develops, that is going to be a huge market.
The big rise in Nokia's stock price during the last 10 years -- its total return was more than 3,600 percent -- doesn't bother Mr. Birinyi much.
''The stock probably won't do better than it did in the 1990's, but it will continue to rise,'' he said.
Mr. Birinyi said shares of companies that have done well ''have a tendency to continue to do well, especially if they are being innovative and inventing new products.''
- George A. Mairs 3rd
- Mairs & Power Growth Fund
Pick: Medtronic
The notion of sticking with a stock for a decade isn't foreign to Mr. Mairs. His $477 million Mairs & Power Growth Fund isn't an active buyer and seller of stocks. According to data from Morningstar, the fund's average annual turnover rate during the 1990's was just 2 percent. But the returns have been solid: an annual average of 18.3 percent for the decade that just ended.
''We are looking for companies with durable franchises, ones that have been around for at least 10 years,'' Mr. Mairs said. ''We are also looking for companies that have a leading market share. If we find companies that qualify on that basis, we are comfortable holding stocks for years, even decades.''
His top pick for the next decade is Medtronic, which also happens to be the fund's second-largest holding.
''It is the leading implantable medical device company in the world today, and has been for 25 years,'' Mr. Mairs explained. ''They have an exceedingly strong franchise -- one that is so strong that they have added to their product line by buying other companies.''
- Roger McNamee
- Integral Capital Partners
Pick: Flextronics International
It may seem counterintuitive, but venture capitalists are often buy-and-hold investors.
''Cisco has been part of our portfolio since just after it went public in 1990,'' said Mr. McNamee, whose firm makes venture capital and public investments in technology companies.
''We have owned Microsoft and Intel for much of the last decade, and Oracle for most of that time,'' he said. ''Their common characteristic is that they were all positioned in front of very large business opportunities.''
Indeed, making sure a company is well positioned in a growing industry -- ''getting the fundamentals right,'' as Mr. McNamee puts it -- is probably the most valuable thing an investor can do when committing money to a stock for a decade or more.
And then, he said, ''you have to leave it to the market.''
Mr. McNamee is comfortable with the fundamentals at Flextronics International, another long-term Integral holding that is his top pick as a keeper for the 00's.
''They are Manufacturing Inc. for the technology world,'' he said of Flextronics, which is based in Singapore. ''They are a contract manufacturer with the most efficient supply train in the industry. When you go to Cisco's Web site to order a router, it goes to Flextronics. They have an exceptional management team and a wonderful reputation of having totally changed the rules. They are the Dell Computer of this decade.''
Flextronics, which went public in 1994, had a total return of more than 1,100 percent during the 1990's. Still, for an Internet-related company, the stock is trading at a comparatively modest 53 times this year's earnings.
- Bill Nasgovitz
- Heartland Value Fund
Pick: Henry Schein Inc.
Mr. Nasgovitz, the president and founder of Heartland Advisors and manager of its $1.1 billion Heartland Value fund, likes ferreting out small, cheap stocks. With so many stocks under attack, he has a big sampling of names to sift through these days.
''We love to bargain hunt,'' Mr. Nasgovitz said. ''That is what we are all about.''
His record of buying low and selling higher is not too shabby: Over the last 10 years, Heartland Value has posted an average annual return of 16.4 percent, Morningstar said.
Mr. Nasgovitz accepted the assignment of choosing one stock to hold until 2010 with a degree of reluctance.
''Ten years is an awfully long time in this competitive market, in this competitive world,'' he said. (At Heartland Value, the turnover rate was a very low 4 percent a year during the 1990's, according to Morningstar.)
Undaunted, he framed the issue by considering the needs of the world's graying baby boomers. His buy-and-hold selection is Henry Schein Inc., a global distributor of dental and health care supplies whose stock he has been buying lately.
''We need more and more dental care, not only in the U.S. but worldwide,'' Mr. Nasgovitz explained. Yet the stock, which traded for $53 in mid-1998, is now selling at about $13. ''It hasn't participated in this rally at all,'' he said.
Mr. Nasgovitz figures that catering to the aging teeth in mouths all over the world should increase Henry Schein's revenues by 15 percent a year through the decade.
The company currently has annual sales of more than $2 billion. ''In 10 years, that means their top-line revenues should quadruple,'' he said.
- Bill Miller
- Legg Mason Value Trust Fund
Mr. Miller is not the stranger to technology that many value managers are. America Online has long been one of the fund's biggest holdings, helping Mr. Miller become that most sought-after rarity: a fund manager whose $12.5 billion portfolio regularly beats the market indexes.
Nonetheless, when asked to pick a stock to buy and hold for the next decade, he chooses a business that is about as basic as they get.
''Waste Management is a company with extremely low valuations that is surrounded with a lot of pessimism,'' he said. ''But it has a good business model and no Internet, currency or technological risk. And it has only three major competitors. We think this is a stock where you can make 5 times to 10 times your money in the next 10 years.''
The fact that few competitors are out fighting Waste Management to haul garbage is an important consideration when making a long-term investment, Mr. Miller said. ''You want a business that is relatively insulated from competition, where the barriers to success are high,'' he said. ''It is very difficult to build a dominant waste management company.''
The company has a long way to go to regain respect on Wall Street. After issuing profit warnings every month from July through October, Waste Management named a new chief executive last November.
''You have to look in places where valuations are low and at businesses that have the possibility of earning high returns,'' Mr. Miller said.
- Liz Ann Sonders
- Campbell, Cowperthwait
Pick: JDS Uniphase
Maybe it's because she just had her second child, a girl. But Ms. Sonders does not quarrel with the notion that buying and holding a stock for 10 years is a little like parenting.
''It won't all be great, and you have to be nurturing,'' she said.
Ms. Sonders is a managing director and a member of the investment policy committee at Campbell, Cowperthwait, a money management firm in New York that is a division of the United States Trust Company. The firm, which manages $4.5 billion, mostly for high-net-worth individuals, has an impressive track record; its gains last year exceeded 55 percent.
Much of the appreciation is a result of big investments in technology stocks, which now make up nearly 60 percent of the firm's model portfolio.
''To me, it is fairly easy to suggest that technology will be the area that will be the big winner'' over the next decade, she said. ''In general, it is where you want to look for opportunities.''
It is also the space that JDS Uniphase, Ms. Sonders' top buy-and-hold pick, occupies. The company, which makes fiber optic products for telecommunications and cable television companies worldwide, is one of the market's darlings, returning 984 percent over the last year.
''It is the marriage of a great company and great management with great industry fundamentals,'' Ms. Sonders said. ''At a minimum, the fiber optic component market is expected to quadruple in size over the next three years. The only hindrance is that there is too much demand.''
Of the companies that compete in this market, JDS Uniphase ''has the broadest product line,'' Ms. Sonders said. ''They are the dominant player in terms of scale and size, and their earnings will grow at a 50 percent annual rate over the next three to five years,'' she said.
- Justin Thomson
- T. Rowe Price International
- Discovery Fund
Pick: Zee Telefilms
The notion of parking a stock in a portfolio for a decade is not one that sits easily with Mr. Thomson, whose $1.1 billion fund rose a hefty 155 percent last year.
For one thing, most of the companies in which the fund invests are small. More often than not, they get swallowed. Some get wiped out. Few stay in his portfolio for an extended period.
''I am not Warren Buffett, so this is quite a high-risk strategy for me,'' Mr. Thomson said by telephone from London. ''It's like running naked.''
Still, the criteria for selecting a company worth holding for a decade are pretty clear, he said.
''It should be in an area where the overall market is growing, because it increases your chances of success,'' he said. ''And companies in growing markets tend to have pricing power.''
Zee Telefilms, an Indian film and television company, is the stock Mr. Thomson said he would buy and hold until 2010, despite his squeamishness.
''Over a decade, this is one of the best ways to play India as a consumer force,'' he said. ''They will be the major beneficiary of advertising spent in that market, and they are well positioned in all sorts of areas, including the Internet.''
A conglomerate that owns free and subscriber channels as well as a cable operation and an entertainment division, Zee was an extraordinary performer last year, posting a gain of more than 1,800 percent.
Currently, Zee Telefilms does not trade in this country. Only 30 percent of its outstanding shares are available to foreigners. Because of various securities laws, the only way to obtain them is through a mutual fund like Mr. Thomson's.
''They don't have an American depository receipt yet, but I would not rule that out,'' Mr. Thomson said.
- Robert E. Turner
- Turner Investment Partners
Pick: Cisco Systems
Mr. Turner, whose firm manages money for institutions and mutual fund investors, isn't a traditional buy-and-hold kind of money manager.
''We buy companies where earnings will exceed expectations and sell them where earnings are going to miss expectations,'' said Mr. Turner, chairman and chief investment officer of Turner Investment, based in Berwyn, Pa. ''We tend to buy and own stocks that are making new highs versus new lows. But we also pride ourselves on fundamental analysis.'' His Turner Equity Growth fund, founded late in 1993, posted an average annual return of 23.7 percent in the 90's.
About 40 percent of the $6 billion that the firm has under management is in technology stocks. And Cisco Systems is at the top of his list for the new decade.
Cisco's stock was a strong performer of the 1990's. Mr. Turner knows that a second decade of gains that are remotely akin to those would be astounding, and unlikely.
''Over the next 10 years they many not have the highest appreciation, but in terms of pure risk/reward, Cisco is the stock I feel most comfortable with,'' he said. ''They understand where the marketplace is going and are making sure they are going to be a leader.''
Since 1993, Cisco has made 50 acquisitions in areas relevant to its business, Mr. Turner noted.
''That shows to me they are paying attention to where the market is going,'' he said.
(His other favorite? Internet Capital Group, the holding company that manages and operates a stable of Net companies.)
- Ralph Wanger
- Acorn Fund
Pick: Jones Apparel Group
Mr. Wanger buys and holds stocks. His $4 billion Acorn Fund has low annual turnover -- about 30 percent. The stocks he selects have not done badly, either. Over the last decade, the fund had an annual average rate of return of more than 17 percent, versus 14.93 percent for the Lipper small-cap funds index.
He is a man of few words but clear ideas about the kind of stock he would want to hold for 10 years: ''Stocks with a terrific brand name in an industry that was likely to be popular for a very long time.''
To make the cut, ''growth is obviously important, and so is management,'' he said. ''Some technology companies have higher growth rates than the stocks I like, but the idea those growth rates will persist for 10 years is unlikely.''
Similarly, ''if you are looking to hold a stock for 10 years, you have to assume that many of the people that are in current management won't be there in 10 years,'' he added. ''You can't bet on a genius unless the genius is young.''
With those things in mind, Mr. Wanger said his top long-term choice is Jones Apparel Group of Bristol, Pa.
''It's a well-run company,'' he said. Plus, ''I think women will be wearing clothing 10 years from now, and Jones Apparel will be making their fair share of those clothes.''
A report showing that Berkshire Hathaway owned slightly more than 12 million Jones New York shares at the end of last year didn't bother Mr. Wanger a bit. Nor do questions that have circulated recently about the company's management tenure.
''Mr. Buffett understands value, and there is value and growth in a company like Jones,'' he said.
Mr. Wanger said he was not aware of any serious matters relating to Jones Apparel management. But he would not be overly concerned if he had heard them, he said.
''Management changes will happen over the next 10 years, no matter what the company is,'' he said.
Many Hot Names of the Past Have Vanished
PAST performance is no guarantee of future success'' just might be one of the most useful phrases ever uttered on Wall Street. For confirmation, one need only peruse these lists of the best-performing stocks of the past four decades.
(Before leaping from your chair in indignation about the names included or excluded, a word about methodology: only companies that were public for the entire 10 years of each decade qualified, so Internet stocks didn't. And stocks trading at $5 or less at the beginning of the decade were ruled out.)
For starters, consider how many of these companies no longer exist as stand-alone businesses. Burroughs and Dr Pepper, two hot stocks of the 1960's, were swallowed. Parker Pen was too -- only now Gillette, the current owner, is exploring ways to unload the flagging business. And during the 1990's the roar of the Dreyfus lion was muffled in the maw of the Mellon Financial Corporation.
Or think about the fate of NVF, the best performing stock of the 1970's. In the ensuing decade and junk bonds, NVF was controlled by Victor Posner, one of the biggest junk bond aficionados of the 1980's.
Things didn't work out so well for Mr. Posner, or for his plastics products company. In May 1986, the New York Stock Exchange suspended trading in NVF shares. Ultimately, Mr. Posner was barred from heading a public company.
But there are positive stories here, too, about brands with lasting value. Tandy and the Gap are still going strong. Scientific Atlanta, one of the best performers of the 1970's, is seen by many as a key player, with its cable modems.
Perhaps the most striking numbers in these charts are the gains of the best performers of the 1990's.
The gains posted by NBTY, a maker of nutritional supplements -- a bit over 7,800 percent -- were more than three times those recorded by Delta Air Lines and NVF in topping the charts for the 1960's and 1970's, respectively. But NBTY barely made the top 10 for the 1990's.
The distinction between the 1990's and the previous 30 years would have been even sharper if the criteria had been relaxed a bit.
Cisco Systems and JDS Uniphase, two stocks recommended as holds for the 00's, went public after Dec. 31, 1989. Cisco, which missed the deadline by a couple of months, rose 69,000 percent in the 1990's; JDS Uniphase shares have appreciated more than 31,000 percent since their public offering in November 1993. KENNETH N. GILPIN
Photos
Charts: These lists of the best-performing stocks of the last four decades hint at both the dangers and opportunities in investing for the long term. Highflying stocks can crash, and the best investments can appear out of nowhere. (Source: Center for Research in Security Prices, University of Chicago Graduate School of Business)(pg. 9)
Graph: ''Long-Term Management''
original link : http://www.nytimes.com/2000/02/20/business/business-10-stocks-for-2010-buy-and-hold-picks-from-top-investors.html?pagewanted=5
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