5 Stocks I Never Plan To Sell

One approach to take is to focus on businesses that have a strong economic moat (i.e., companies that can weather the tough times and keep the cash flowing in during the good).

 

Here are five stocks I never plan to sell, stocks that feature sturdy moats, compelling value propositions, and proven business models.

 

Alphabet’s many competitive business moats are both wide and deep, putting it at the top of the list.

 

Google’s dominance in the search engine space is overwhelming, accounting for about 82% of desktop and 95% of mobile market share in the U.S. alone, not to mention the fact that YouTube is practically unrivaled when it comes to online video consumption.

But while its search and video sharing platforms might get all the attention, Alphabet’s other offerings pack just as much of a competitive punch as its more lauded and famous brands. Google’s Gmail, for instance, is one of the most popular webmail providers in the world — with 1.5 billion active users globally — and appears to be taking business away from other popular email names such as Yahoo! Mail, whose user growth has declined the last few years.

 

Alphabet’s other well-known applications include satellite imaging solution Google Earth, web browser Google Chrome, and Google Android, Alphabet’s mobile/desktop operating system used mainly for touchscreen devices such as smartphones and tablets.

 

 

The reason this strategy is important is simple — the more eyes on its products, the more advertising space Alphabet can sell. And the more customers it counts as users, the more America’s small business community is willing to pay for exposure on various ad platforms. It’s a win-win scenario for Google — one that’s turned it into one the most profitable companies in the world.

 

Amazon (AMZN) is another company that recognized the importance of sheer customer numbers when it came to success for its business, only this time in the cut-throat world of e-commerce.

 

With its popular online marketplace — and a huge and growing roster of both suppliers and buyers — Amazon was able to tap the potential network effects that could be leveraged when bringing people together at the same time.

 

As it expanded, Amazon moved into new retail pastures, going from being just an online bookstore to specializing in other verticals such as electronics, movies, and clothing.

 

In a bid to bring more and more merchants and shoppers to its site, AMZN even created its alternative third-party Amazon Marketplace, one that would essentially compete with its own Amazon.com platform.

 

No matter — Amazon’s thirst for increasing user engagement was unquenchable. The momentum from this flywheel concept reinforced in customers’ minds the fact that Amazon was the cheapest and best place to buy on the internet.

 

Taking first-mover advantage over Google and Microsoft, AMZN launched its Amazon Web Services (AWS) in 2006 and is now reputed to host a third of all activity that takes place on the internet.

 

The segment has turned into a wildly profitable business for Amazon, bringing in $45 billion of revenue in 2020. Since AWS is a venture that benefits from scale, the more it can grow, the more cost-effective it becomes. And it is “sticky” too; customers already with Amazon stay with Amazon. Given that AWS is the industry leader right now, that will be sweet music to AMZN investors’ ears.

 

Some companies’ moats are so strong that eventually the monopoly regulators have to come knocking. This famously happened to Microsoft (MSFT) in 2000, but it hasn’t hampered the American tech corporation’s fortunes too much in the interim.

 

 

But there’s plenty more to Microsoft’s competitive edge than this. Its acquisition of LinkedIn in 2016 added an edge to MSFT’s productivity and business processes segment, a segment that generated around a third of all of Microsoft’s revenues in 2020.

Furthermore, MSFT’s pivot to the cloud has been a major growth driver recently, as its main cloud offering, Azure, grew revenues 50% in the first quarter of 2021. Although not the top player in the cloud space, Microsoft does take second place behind Amazon, with a 20% share of the entire industry.

 

One factor to remain bullish about Microsoft is its enviable cash position. The company recorded a cash reserve of $139.97 billion last year, meaning it’s in a great place to fund more research and development projects to keep it ahead of the rival pack.

 

It’s been claimed that the term “economic moat” was actually coined by famed investor Warren Buffett himself, so it’s no surprise that the Oracle of Omaha’s own firm, Berkshire Hathaway, should make it onto this list of stocks I never plan to sell — since Berkshire is a kind of super-portfolio featuring top notch companies with wide moats.

Take Coca-Cola, Buffett’s fourth-largest holding, as a perfect example of what is sometimes referred to as a “cultural moat,” in which the stability and consistency of a product over many decades engenders customer loyalty and trust. Indeed, KO’s ill-fated attempt to introduce its “New Coke” recipe in 1985 led to a consumer revolt and an embarrassing company backtrack with the reintroduction of its “Coca-Cola Classic.”

 

And it’s not just the power of individual company moats that makes Berkshire (BRK.B) worth holding; the investment vehicle has consistently returned annual growth rates double that of the S&P 500, suggesting that Buffett’s stock picks perform synergistically to deliver greater capital appreciation over and above what the market average ever could. 

 

The success of electronics company Apple (AAPL) has often been credited to its groundbreaking design and functionality features, but the real hero in the story might not be the hardware on the outside, but the software under the hood (i.e., its unique operating system). 

 

Apple’s entire ecosystem is designed to snare customers — and keep their attention for as long as possible. It does this by building a suite of applications that can only be used on its iOS operating system — think iTunes, iCloud, the App Store, Apple TV, etc. There’s nothing necessarily sinister about this. All brands want to make their products as sticky as possible. It’s just that Apple has perfected the art and has become very good at doing it. 

The result of this approach is that consumers become heavily reliant on Apple (AAPL) devices and are thus willing to pay a premium for access to its products. This means that Apple has a lot of pricing power and can demand a larger than usual ticket price for its Mac computers and iPad tablets.

 

The rationale seems to be that $1,000 might be steep for a new iPhone but worth it for what it delivers; while the opposite — receiving $1,000 for never having another Apple phone again — is simply untenable. With a choice like that, it’s no wonder Apple is where it’s at today.

 

It might not be the quickest way to generate outsized stock market returns — but strong moats and lots of patience make up the surest method to financial success if history is a guideline.