As we’re almost done with 2009, what makes this New Year’s transition different than most is that we’ll also be entering into a new decade.
Generally, at the beginning of decades analysts of all different niches try to forecast what should be 10 years from now. That being said, I decided to do some research and dig up some stock picks that came out 10 years ago in regards to stocks that you could hold for 10 years.
I came across an intersting article from the NY Times, 10 Stocks for 2010: Buy-and-Hold Picks From Top Investors, so lets look at how these stocks actually performed 10 years later.
In all fairness, picking stocks that should do good 10 years out is definitely not an easy task. Especially considering all the tragic and unforeseen events that happened during this decade; nonetheless, you’ll see that some of these picks just didn’t fare well at all.
Here’s what the initial NY Times article was looking at…
What we’ve done is to ask 10 very smart, very successful investment professionals to pick one stock each — a stock that barring an act of God or some unforeseeable geopolitical disaster they would feel comfortable buying now and holding until Jan. 1, 2010.
Given the track records of the participants, however, when the time comes to look back, the odds are that the bulk of these companies will have qualified as good long-term investments.
As a quick summary, out of the 10 stocks, only 2 managed to come out in green while more than half resulted in worse than -20% returns. A key pattern in many of these stocks were initial 2-3 years of marginal gains followed by slow and steady downtrends.
1. Oracle (ORCL) -10%
”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.
Oracle peaked around $45 in 2001 and subsequently came crashing down to under $7 not to far after. Since 2002, the stock has been on a very gradual uptrend; however, its safe to say the high flying expectations of this company from the initial analysis of John Ballen has subdued a little bit.
2. Nokia (NOK) -72%
”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.
What was somewhat surprising of this stock pick was that going into the year 2000, Nokia was experiencing a massive 200+% gain over 1999. In my opinion, I would expect a stock to do that well over 10 years with that kind off that kind of return. While Nokia had taken the global approach has desired by Laszlo Birinyi, other companies have jumped into the mobile phone game and stolen some of the market share.
3. Medtronic, Inc. (MDT) -4.66%
”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.”
Medtronic has basically been trading between the $40-60 trading range, until mid-2008 when the stock plummeted just like rest of the market. It has since bottomed out, and could come into green before 2009 is over if the stock heads over $46.
4. Flextronics International Ltd. (FLEX) -68%
”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.”
Flextronics pretty much fizzled as quickly as the decade started after hitting its peak in mid-2000, and continuing to decline ever since. I think the decline came as part of the popping of the Internet bubble in the early 2000′s followed by using antiquated ideology from the 90′s that just didn’t carry over.
5. Henry Schein, Inc. (HSIC) +667%
”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.
By far the best returns seen by any stock in this list, Henry Schein has been on an uptrend ever since the decade started; however, it looks like 2010 can’t come soon enough as the trend looks to be over.
6. Waste Management (WM) +89.57
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.”
Waste Management took off all the way from the start, and actually still doesn’t see any signs of stopping and any major competition. A stock for 2020???
7. JDS Uniphase Corporation (JDSU) -99.07
”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.”
Definitely the worst performing stock of this list. In late July 2001, JDSU was part of the largest (up to then) write-down of goodwill and business losses in business history: $45 billion, which basically screwed the company. JDS Uniphase dipped from over $1,000 to under $20 in just 2 years. Not to mention this all happened in the first 2 years of the decade. Since than the stock has only continued to head lower and sits below $10.
8. Zee Telefilms -
Couldn’t find much information about this stock, other than it is on the Bombay Stock Exchange and has to do with the Bollywood film industry.
9. Cisco (CSCO) -56.41
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.”
Cisco, a favorite of most in the 90′s, never really carried its swagger into the millennium. Between 1998 – 2000, the stock saw a 300% return only to see it all get erased before 2001 even started. Since than Cisco has pretty much not moved at all.
10. Jones Apparel Group, Inc. (JNY) -24.32
”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.”
Choosing an apparel company is certainly interesting for a decade long pick. Understandably Jones Apparel may have come out in the green if it wasn’t for the extreme credit crunch. Then again, another reason picking retail would be interesting.
What we can learn from this
While we can pick stocks that will do good over a year or two, trying to find stocks with a 10 year time frame is like find a needle in a haystack. There will always be unforeseen incidents that make the original term of buy and hold trading somewhat outdated and inefficient.
The markets have completely changed from the 80′s and 90′s, and have not created a conducive environment for decade long holdings.
Some trends noticed for picking long-term stocks:
- If a sector as a whole is experiencing a boom towards the end of a decade, expect it to crash in the next decade.
- Choosing stocks with 100+% returns leading up to the decade will not be able to continue that trend 10 years down.
- Finding companies that have stabilized themselves in a niche with little competition should benefit them in the long run.
What do you think of long-term buy and hold strategies?