Your investment objectives change depending on how far away you are from retirement.
For those with more time on their side, there are three key things to look for in a company – strong growth prospects, a dominant market position, and a history of being able to adapt.
Here are three share ideas that we think have these traits and could help grow your wealth over the long term.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments will rise and fall in value, so you could get back less than you invest. Ratios also shouldn’t be looked at on their own. Yields are also variable and are not a reliable indicator of future income, and no income is ever guaranteed.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
Coca-Cola
This one’s straight out of the Warren Buffett playbook, perhaps the master of finding investments to hold for the long term.
Coca-Cola is a beverage giant, first launched in 1886 and now selling products across over 200 countries.
Of course, Coca-Cola’s brand is one of its core strengths. It boasts a truly global presence in a market that’s unlikely to disappear anytime soon. That brand gives it pricing power, which in turn allows the giant to perform well in a range of environments.
Coca-Cola has spent almost $100bn on marketing over the past decade to protect the brand, and that’s not expected to slow anytime soon. It also has a slightly different business model from its closest rival, Pepsi. Rather than getting hands-on with manufacturing and bottling, it focuses on selling the syrup and marketing the brand. That helps margins and frees up more cash for things like marketing.
Coca-Cola’s dominant market position is one reason it’s been able to grow its dividend for the past 61 years. The 2.9% forward yield on offer isn’t the highest in the market, but you’d be hard-pressed to find a company with a longer track record.
However, no dividends are guaranteed. And at over 23 times next year's earnings, it’s not a cheap stock. That means there’s not much room for error and new investors will have to pay up for what’s on offer.
Microsoft
Of all the mega-cap US names, Microsoft is probably the best example of a company hitting the three pillars of strong growth prospects, a dominant market position, and a history of adaptation.
Microsoft's future is now far more about cloud computing and artificial intelligence (AI) than it is Excel and Word (not that the latter aren’t still important). AI services are becoming a growing part of the growth out of its cloud business, Azure. For now, demand is outstripping capacity, which is holding growth back a touch – but we're not overly concerned – it's a nice problem to have.
Investment in new infrastructure is ramping up to service that demand. Tens of billions is being spent each quarter, but Microsoft is such an efficient beast that it’s still been able to generate mammoth amounts of free cash flow.
Microsoft has leadership positions across its range of products and services, from computing to gaming and now into the AI world with its cloud operations. This is a business with a long history of staying at the top, and we don’t see that changing any time soon.
But as we've seen across the sector, markets can get ahead of themselves. When that happens, nothing short of perfection is tolerated. It feels like that's where we're sitting right now, increasing the chances of potential ups and downs.
RELX
RELX is a UK-listed business, and bucking the trend of legacy sectors we tend to see in UK markets, it’s actually one of the world’s leading data experts.
Its data analysis tools span across a range of areas, like helping insurers set prices, governments fight fraud, and banks follow anti-money laundering rules. These important tasks don’t stop, even when the economy is down. Add in long-term recurring contracts, and revenue tends to be relatively steady and, importantly, more predictable.
RELX is a perfect example of a company with a proven record of adaptation. Over the past 15 years or so, it’s invested heavily in innovation and transformed its revenue streams.
Back in 2000, only 22% of revenue was digital – that’s risen to over 80% for the past four years.
AI now presents a new opportunity to adapt again.
Huge troves of data start to shine through when you build and train AI tools on top of them. New AI tools are coming out, and there’s scope for RELX to capture that new demand. But it’ll probably take some time to really embed new products, and the valuation is at a premium which adds pressure to deliver.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.