Let's go ahead and address the elephant in the room up front: By highlighting stocks I'll never sell, I obviously don't mean ever under any circumstances. Changes to my personal financial situation, changes to my priorities in life, or even changes to the businesses themselves could motivate me to sell.
That said, equipment rental company United Rentals (URI -1.32%), rural lifestyle retail chain Tractor Supply Company (TSCO -1.68%), and coffee giant Starbucks (SBUX 0.43%) are three stocks I'll "never" sell. What I mean is that I'm extremely confident that shareholder returns will be stellar for these companies over the coming decades, not just the coming years.
Moreover, it's hard to imagine anything would materially weaken the competitive advantage that each company enjoys. This makes it more likely that I'll hold these three stocks longer than most of the other stocks in my portfolio.
1. United Rentals
United Rentals has 1,500 locations and is the market-share leader in equipment rentals for North America, with a 17% share. However, that's not the full extent of the company's competitive advantage. As of March 31, it has a fleet of equipment worth $20 billion. Simply put, it's extremely cost-prohibitive for a newcomer to displace United Rentals from the top, which is why I expect it to stay atop during my lifetime.
In its investor day presentation, United Rentals' management points out that recent legislature will lead to ample spending in the infrastructure space in the years ahead, which is good news for the equipment rental industry. The Infrastructure Bill and the Inflation Reduction Act alone combine to provide about $1.5 trillion in spending, which is a nice wind in its sails.
With industry tailwinds at its back, United Rentals will likely keep doing what it does best: generate free cash flow. The company has been free-cash-flow positive every year for the last decade, averaging a margin of 16.3% over this time -- that's really good.
Armed to the teeth with free cash flow, United Rental's management generously gives back to shareholders. It's reduced its share count by about 17% over the last five years through share repurchases. And management just started paying a dividend, which yields about 1.5% for those who buy today.
URI Average Diluted Shares Outstanding (Quarterly) data by YCharts.
Between ongoing market share gains, free-cash-flow generation, share repurchases, and dividends, I believe United Rentals will continue to be a market-beating investment for many years to come, and I have no intention of selling.
2. Tractor Supply
Tractor Supply Company had almost 2,200 locations as of the end of the first quarter of 2023. Moreover, the company has almost 200 locations for its pet retail brand Petsense. Overall, the company sells important products to pet and livestock owners, and that's what the bulk of this business is. In 2022, 50% of its total sales were in the livestock and pet category.
I believe the livestock and pet category is a resilient space. People spend to care for their animals regardless of what's happening in the economy. And animal owners today will likely still be animal owners 10 years from now.
For that matter, Tractor Supply's management only considers 15% of its overall business to be discretionary consumer purchases. It considers the rest to be things that its customers truly need to maintain their rural lifestyle.
Not only are most of its sales in resilient categories, Tractor Supply's customer base is also loyal as well. It ended the first quarter with 30 million members in its loyalty program. And in 2022, these loyalty members accounted for 75% of the company's total sales. Hopefully, it's clear by now why I feel so optimistic about Tractor Supply's future in the coming decades.
An investment in Tractor Supply is much like one in United Rentals. I expect the company to generate strong profits. And management is in the habit of repurchasing shares and paying a growing dividend, which all contribute to growing shareholder value.
3. Starbucks
Finally, Starbucks is the largest coffee company in the world. And I don't believe that investors realize just how strong its business is right now. In its fiscal second quarter of 2023, the company generated record quarterly revenue of $8.7 billion. And there's a big reason that number should blow your mind.
According to the CDC, the public health emergency from COVID-19 ended in May. But China continues to struggle. This is significant for Starbucks because China is its second-largest market. In China, it has over 6,200 locations, which is about 17% of the entire company.
Rewinding the clock to just before the pandemic started, Starbucks generated revenue of $745 million in China for its fiscal first quarter of 2020. By comparison, it generated just $622 million in China in its fiscal first quarter of 2023. Moreover, Starbucks only had 4,292 locations in China back in Q1 2020 compared to 6,090 locations in Q1 2023. In other words, China is still underperforming.
In short, Starbucks is currently hitting company records despite being weighed down by financial results in China. To me, this is a testament to the resiliency of this business and management's ability to find ways to grow in spite of adverse circumstances outside of its control. And that's why it makes my list of stocks I'm never selling.
The good news is that financial results in China are poised to improve for Starbucks. There are signs that China is finally starting to move past the pandemic. For example, travel has recently surpassed pre-pandemic levels, according to China's Ministry of Culture and Tourism.
If China's economic recovery is across the board, then I expect Starbucks' numbers in China to recover as well, leading to the company smashing even more quarterly records in the near future.
To be clear, I like United Rentals, Tractor Supply Company, and Starbucks for the very long term -- maybe even my entire lifetime. However, given the real possibility of economic recovery in China throughout this year, Starbucks is the stock that I believe has the most immediate upside of this trio.
