There’s no better gift for your children than securing a part of their financial future. You’d be hard-pressed to find a better way to do it than sock away in some rock-solid stocks that can not only stick around but grow for decades.
Not every stock fits the very long-term bill though, so we asked our contributors to pick three great buy-and-forget stocks that they believe could reap your grandchildren rich returns if bought today. Here’s why they chose JPMorgan Chase (JPM 0.16%), Sherwin-Williams (SHW 0.35%), and 2U Inc. (TWOU).
Owning the future of education
Steve Symington (2U Inc.): A good education is crucial to ensure the success of today's youth, so why not buy them a piece of a promising business that's shaping the future of their learning experience? That's where online higher-education specialist 2U comes in.
Image source: Getty Images
Though 2U already has 38 announced programs at 17 top-200 universities, over the long term the company expects to grow its number of programs to around 193. As a result, 2U is also targeting at least 30% year-over-year revenue growth "for the foreseeable future."
Last quarter was no exception. Revenue climbed 36.7% year over year to $64.8 million, and translated to adjusted net income of $0.5 million, or a penny per share. Both the top and bottom lines arrived above the high ends of 2U's financial guidance ranges, which allowed the company to simultaneously increase its full-year 2017 guidance.
What's more, earlier this month 2U agreed to spend $103 million (plus $20 million in potential earn-out payments) to acquire GetSmarter, a premium online short course specialist that caters to working professionals. The acquisition will accelerate both 2U's international expansion and its entry into non-degree alternatives.
So if you're willing to buy 2U stock in these early stages and watch its growth story play out in the coming years, I think it could be a great learning experience for any young investor.
Your grandchildren will thank you for choosing this stock
Neha Chamaria (Sherwin-Williams): When you’re thinking about your next generations, you’re thinking really long term; which means if you’re investing for your grandchildren, you need stocks that will not only be around several years or even decades down the line but will also have grown considerably by then. Ideally, I’d look to invest in a company that’s a leader, or better yet, a household name in an important industry, has been an outperformer and grown exponentially over the years, and offers reliable dividends too add a dash of extra income to your funds. There’s no better candidate that I can think of than Sherwin-Williams. Just step back two decades to show you how far the stock has come:
While no one can guarantee that Sherwin-Williams will be a multi-bagger in coming years, there’s little reason to believe it won’t grow either. The stock’s tremendous run up isn’t by fluke: Sherwin-Williams is a 150-year old paint company that has made its mark in the housing, construction, and industrial markets with its namesake and Dutch Boy brands, among others. Going by the consistent growth in its same-store sales – it improved 5% last year – there’s no denying Sherwin-Williams enjoys brand loyalty.
An expansive own store set-up, credible management, focus on growth, and financial fortitude has helped Sherwin-Williams grow its net income and free cash flows manifold over the years, and there’s no greater proof of Sherwin-Williams' credibility than its dividends, which have risen every year since 1979. For long-term investors, those dividends can make a huge difference as the “total return” change in the above chart reveals. With the company all set to become the world’s largest paints and coatings company once it acquires Valspar, there are strong chances your children will thank you later in life for having bought some shares of Sherwin-Williams today.
A bank for the long haul
Jordan Wathen (JPMorgan Chase): In the banking industry, where a 1% return on assets is the hurdle for "good" banks, there isn’t much room for error. Good banks do well by avoiding the bad.
JPMorgan shines because of its management, and I think it goes deeper than its CEO, Jamie Dimon. JPMorgan has the right incentive structure in place to do well even if Jamie Dimon steps down as CEO in the next few years.
A recently filed proxy statement shows that 95% of Dimon’s 2016 pay of $28 million is classified as “at-risk” pay. He earned $1.5 million in base compensation last year, with the remainder made up of $5 million in cash and $21.5 million taking the form of performance share units.
Much of Dimon’s pay rests in JPMorgan’s ability to generate good returns on tangible common equity. Thus, the key factors that drive shareholder returns are what drive management's salaries. This is how compensation plans should work, and it’s what gives me confidence that JPMorgan will generate attractive returns over full banking cycles.
So long as this incentive structure is in place, shareholders can be confident that the bank will be run with long-term shareholders in mind. And for that reason, even at a recent price of roughly 1.8x tangible book value, I think JPMorgan stock is a good pick for the long run.
