The three best buy and hold investments to purchase now include the hottest software startup since Facebook (NASDAQ:FB), a producer of semiconductor manufacturing equipment and a trillion-dollar technology giant.
In today’s age of day trading options on Robinhood, buy-and-hold investing could seem like a strategy of the past. However, it is the preferred strategy of many great investors.
Warren Buffett has long been one of the biggest proponents of buy-and-hold investing, famously stating, “If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.” Instead of instituting a stock split, he has opted to maintain a higher price for Berkshire Hathaway (NYSE:BRK.A) Class A shares, believing the elevated prices will attract long-term investors. Berkshire’s (NYSE:BRK.B) Class B shares are priced significantly lower but offer less overall voting power and equity.
The underlying idea of buy-and-hold investing is to avoid hinging investments on market shocks and sudden price swings but instead generate returns by understanding a security’s intrinsic value. Adopting a long-term view and holding period forces the investor to determine if an investment will produce consistent returns and help avoid short-term market buzz. If though, a reward should be to buy undervalued investments.
However, it can be challenging to deduce the best long-term investments with hundreds of securities traded on stock exchanges. As a result, we have decided to highlight the three best buy-and-hold investments to aid in an objective search.
3 Best Buy and Hold Investments to Purchase Now: #3
ASML Holding NV (NASDAQ:ASML)
ASML Holding NV (NASDAQ:ASML) is a producer of photolithography systems used in semiconductor manufacturing. The company was founded in 1984 and is headquartered in Veldhoven, Netherlands. ASML possesses a market capitalization (market cap) of $249.0 million.
Semiconductors are a crucial part of nearly every piece of advanced electronic equipment we use today, from smartphones to automobiles to magnetic resonance imaging (MRI) machines. Its usefulness derives from its sensitivity to electronic and magnetic fields, making them excellent sensors. Before the invention and popularization of semiconductors, computers relied on tubes and dials to operate. As technology advances and matriculates into our everyday lives, demand for semiconductors is expected to skyrocket. The global semiconductor industry, valued at $425.3 billion in 2021, is forecast to reach $803.2 billion by 2028.
The pace of advancement in the semiconductor industry is breathtaking. According to Moore’s law: “the number of transistors on a microchip doubles every two years, though the cost of computers is halved.” Derived by Gordon Moore in 1965, the rule has held valid ever since.
The consistency of Moore’s law means it is used to set industry research and development targets. The incredible pace of the industry-standard forces companies to enlist the best materials, personnel and equipment. ASML is the industry leader in lithography machines.
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Photolithography is a crucial component of semiconductor production. It involves using light to expose circuit patterns from a photomask onto a semiconductor wafer. Chemical treatments are then used to etch the pattern into the wafer.
Lithography machines are the greatest capital expenditures at semiconductor companies. However, these machines are so crucial that Wired labeled them as “The $150 Million Machine[s] Keeping Moore’s Law Alive.” ASML controls 80-85% of the lithography market for semiconductors. A top-end plant requires 9-18 of these machines to operate. In order to gain a competitive advantage, Intel (NASDAQ: INTC) recently placed an order for one device from ASML for over $340 million.
Lithography machines are undoubtedly a crucial component of the semiconductor industry and will only become more valuable as we approach the physical limits of Moore’s law. However, ASML’s main appeal to long-term investors is its market defensibility. Each machine contains over 100,000 parts and two kilometers of cables. The parts can take up to three cargo planes, 20 trucks and 40 freight containers to transport. The enormous construction and transportation costs for each machine make it nearly impossible for any competitor to compete. As a result, ASML’s market share is set to only grow in the long run.
The company’s revenue is forecasted to rise by 13.8% in 2022 and 11.2% in 2023. ASML has seen its share price decline by 6.4% over the past 12 months due to supply chain disruptions. ASML’s movement is graphed below alongside a 50-day moving average to illustrate change better.
As a company that sells and transports enormous machines, ASML has been significantly affected by supply chain disruptions. However, the demand for semiconductors, and subsequently semiconductor equipment, will remain high beyond the supply chain crisis.
ASML possesses over $8.3 billion in cash on its balance sheet and a low debt-to-equity ratio of 0.5. With a dominant hold over the lithography market, ASML is an excellent long-term investment.
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3 Best Buy and Hold Investments to Purchase Now: #2
Alphabet Inc Class A (NASDAQ:GOOGL)
Alphabet Inc. Class A (NASDAQ:GOOGL), founded in 2015, is the parent company of Google and 160 other subsidiary companies. The corporation is headquartered in Mountain View, California, and has a $1.7 trillion market cap. Unlike its Class B (NASDAQ:GOOG) stock, Alphabet’s Class A shares have voting rights.
Alphabet possesses one of the most defensible market share positions in U.S. economic history. The corporation controls 92.5% of global search and 64.5% of the global browser market. Elon Musk stated Google was the only artificial intelligence (AI) competitor that worries him. Jeff Bezos called Google a mountain.
“You can climb the mountain, but you can’t move it,” Bezos said.
Alphabet is unique in its ability to dominate numerous markets simultaneously. While Apple (NASDAQ:AAPL) is a force in consumer electronics and Tesla (NASDAQ:TSLA) commands the electric vehicle market, Alphabet’s 160-plus subsidiaries allow it to invest and compete across various industries, from Global Positioning System (GPS) software to self-driving cars to artificial intelligence. Amazon (NASDAQ:AMZN), for comparison, controls a respectable but distant 40 subsidiaries. Alphabet’s wide-ranging subsidiaries allow the company to build a consumer ecosystem (Google Maps, Gmail, Google Search, etc.) that is nearly impossible to compete against.
Alphabet’s diversification also allows the company to avoid growth stagnation. A problem Apple is currently encountering. Apple’s iPhone unit sales peaked in 2015. Only so many consumers are able and willing to purchase a particular product. Not only are many Alphabet products capable of achieving greater market penetration due to free access for consumer, but the company’s diversification allows it to offer more products and reach more markets. Once Google Search reaches market saturation, Alphabet can lean on Google Drive or Android to drive sales growth. Alphabet’s growth is limitless, considering the company’s long-term focus. Alphabet started pursuing self-driving cars in 2009, long before its competitors.
It should come as no surprise that Alphabet has a strong growth outlook. The company has 17.8% and 15.6% sales growth rates forecast for 2022 and 2023, respectively. GOOGL has seen its share price climb by 12.5% over the trailing 12 months, as shown below, along with its 50-day moving average.
GOOGL’s upcoming July 2022 20-for-1 stock split is only another reason to purchase the stock. A downside of Alphabet’s skyrocketing share price of 211.8% over the last five years is liquidity. When a stock begins to be quoted in thousands of dollars, it becomes more difficult to find buyers and sellers. Many retail investors end up priced out.
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A 20-for-1 stock split transforms one current share of GOOGL into 20 new shares, reducing the stock price by approximately 20-fold and increasing liquidity. There is often a jump in share price following a stock split as the increased liquidity makes it easier to find buyers and sellers, resulting in a safer asset. The stock split is an excellent opportunity for investors to increase returns by a few extra percentage points.
Alphabet’s long-term focus and market diversification have built a company with a near-impenetrable market share and high future growth, perfect for buy-and-hold investing.
3 Best Buy and Hold Investments to Purchase Now: #1
Snowflake Inc (NYSE:SNOW)
Snowflake Inc. (NYSE:SNOW) is a $66.7 billion data warehousing company specializing in cloud computing. The corporation was founded in 2012 and is currently headquartered in Bozeman, Montana.
As a red-hot technology unicorn, Snowflake appears to be a typical growth investment, possessing high year-over-year revenue. The company is projected to see its sales jump by 65.5% in 2023 (its current fiscal year) and 54.0% next year. However, that simple characterization is far from the truth.
Despite being less than nine years old, Snowflake has already achieved history. The company’s $3.36 billion initial public offering (IPO) in September 2020 was not only the largest in software history, but it also drew the participation of Warren Buffett. The legendary investor has avoided IPOs and shied away from technology stocks. However, Buffett broke both trends for SNOW’s IPO, investing over $700 million in the offering.
Buffett fell in love with Snowflake’s two-pronged strategy to dominate the market: aggressive marketing and unbeatable product quality.
Snowflake compiles and analyzes data received by corporations to help them operate more effectively and efficiently. By outsourcing their data warehousing and analysis, companies can avoid maintenance and warehousing costs, as well as maintain a leaner information technology (IT) team. Snowflake’s value proposition is its ability to analyze its clients’ data up to 15-20x faster, and more cheaply than in-house solutions or competitors.
The company also practices a unique brand of marketing in the tech world, a direct, top-down approach to sales. Instead of appealing to IT personnel, the end-users, Snowflake attempts to win over high-level technology officers. The company’s sales strategy means it must employ high-skilled sales professionals capable of persuading c-suite executives. As a result, it spends 61 cents on sales and marketing per dollar of revenue generated. However, this unique marketing approach is well worth the cost. It allows Snowflake to dominate the data solutions market for large enterprises.
Snowflake has already converted dozens upon dozens of Fortune 500 companies to clients. They range from JetBlue (NYSE: JBLU) to Electronic Arts (NASDAQ:EA) to CapitalOne (NYSE: COF). The company’s ability to leverage sales and engineering to generate enormous year-on-year growth is what makes it a buy-and-hold investment and is why its dominance is expected to continue.
SNOW has seen its price drop by 7.0% over the past year. The change in share price is displayed below alongside a 50-day moving average.
The decline in share price was triggered by disappointing financial projections released by Snowflake in early 2022 for the upcoming fiscal year. A slower-than-expected rebound caused the lower projections in consumption following the holiday season and platform enhancements reducing efficiency due to servicing schedules.
However, multiple analysts on Wall Street have indicated the recent decline in SNOW’s stock price as a misalignment from the firm’s intrinsic value. Mizuho analyst Gregg Moskowitz noted Snowflake’s positive track record during previous platform enhancements. Evercore ISI’s Kirk Materne stated that investors were “overreacting.” FBN Securities analyst Shebly Seyrafi noted “numerous positives in the company’s latest results, including strong growth in its count of large deals and traction for Snowflake’s data-sharing options, which he said are a strong differentiator for the company.”
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