Stocks to Hold Forever
One Great Oil & Gas Stock
The following actually happened to me two weeks ago, as my wife and I were preparing to fly from Boston to Dallas on our way to Portland, Oregon.
After we passed through the ID check, we joined a group of people queuing for the X-ray conveyor belt and the body scanner. My wife was in front of me. But another group was also queuing for the same conveyor belt, so we were merging. And things were moving very slowly, so some people were getting impatient, while others were more Zen-like.
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Among the former group was a woman who—with the usual body language—indicated her intention to merge behind my wife and in front of me, despite the fact that we were clearly traveling together.
So Zen-like, I motioned that she should do so.
At which a nice woman behind me said to the first woman, “You could have let him go.”
Woman 1 snapped back, “Why? I've been waiting longer than you.”
Woman 2, “But they're traveling together.”
Woman 1, “So what. I'm not tied to my husband.”
Woman 2, “I'm just trying to be considerate. We’ll all get through eventually.”
Woman 1, “Why are you bothering me? Why don't you just stop talking?”
Woman 2, “Well, I won’t talk to you anymore.”
Woman 1, “Good!”
And that was that. I can’t remember the last time two women fought over me. And my wife, pre-occupied with putting her stuff on the conveyer belt, missed the whole thing!
But it got me thinking. About culture. About civility. And above all about impatience, which is the cause of so many investments gone wrong.
On that subject, here’s a button with a maxim worth remembering.
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Now, if you clicked on the button, you read an interpretation that included the phrase, “patience means holding patiently as your stock climbs, until you get an exit signal.” For most of us, this is true.
Cabot has had a slew of big winners like First Solar, Chipotle Mexican Grill, Crocs, and International Game Technology thanks in part to the rule that says, “Let your profits run.”
But for a very rare group of investors, patience means holding on forever—and this can be a very good strategy. In fact, less than two weeks ago, I wrote about this strategy of holding stocks forever, and if you missed it, you can read the whole column here: Stocks to Buy and Hold Forever.
The main points were these:
- That if you work hard to target stocks with the greatest growth potential, and then simply hold them forever, you avoid the common mistake of selling a great growth stock too soon.
- That some of your stocks will fail, and bring you big losses.
- But the few big winners that double, and then double again and again over the years will far outweigh those losers.
- And if you simply keep holding, you’ll pay no taxes on your gains, and pass them to your heirs!
Now, the simple fact is that very few people make really big gains in stocks, and the main reason is that most don’t try! Sure, they have dreams of making a killing, but they have no plan for how to do it!
Yet, as we all know, your very best ally in the investing business is time. And holding forever is the best way to put that ally on your side, permanently. So this strategy of holding forever just might be the best way for you to avoid the most common mistakes of most investors.
But you’ve got to buy the right stocks.
And what are they?
1.They’re the stocks of companies with revolutionary goods and services that are likely to be in big demand by growing numbers of customers. Alternatively, they’re the stocks of companies benefiting from revolutionary changes, like scientific discoveries or government legislation.
2.They’re the stocks of companies that are still relatively small, and thus have room to grow.
3.They’re the stocks that are not currently loved by investors and thus have the potential to benefit from improved perception as the years go by.
So what stocks would you buy today if you wanted to hold them forever . . . and you wanted them to make you (and your heirs) rich?
A little over five years ago, I asked this exact same question. And I put my head together with the other Cabot editors and came up with a list of 10 stocks. (You can read all about them in my column from two weeks ago.)
Since then, while some are down big and some are up big, the AVERAGE return for these 10 stocks was 52.4%. By comparison, the S&P 500 LOST 2% over the same period.
That’s a great result, and reason enough to do it again. So I recently polled my editors to work up a new “never-sell” list of stocks, and I’ll be writing about them in the weeks ahead, one at a time, so as not to overwhelm you. And I’ll cover them in alphabetical order.
The first stock is unusual, in that the company sells not a revolutionary new product or service but a basic commodity. Its name is EOG Resources (EOG) and what it sells is oil and natural gas.
(Note: The E stems from Enron, whose name was mud for a while, but those troubles are long gone, and you shouldn’t let them influence your thinking.)
What should influence your thinking is the fact that a revolution has taken place in the oil and gas industry, and that revolution is fracking, which enables access to vastly more oil and gas deposits at lower cost and is likely to lead to energy independence for the U.S. as early as 2020.
Understanding that, it makes a lot of sense to invest in a leader in the industry.
Headquartered in Houston, EOG is one of the largest independent oil and gas companies in the U.S., with nearly eight billion barrels of oil equivalent (BOE) of natural gas and more than two billion (BOE) of oil and natural gas liquids. These deposits are largely in the Bakken (North Dakota) and Eagle Ford (Texas) shales, and those numbers are growing.
For 2012, analysts are looking for earnings growth of 44%, and for 2013, 16%, but that’s probably conservative.
In the latest quarter, EOG’s after-tax profit margin was a whopping 15.9%, which is astounding for the industry. The stock’s forward PE ratio is 19, and the dividend is 0.6%, and is raised nearly every year.
Finally, EOG has been named to Fortune Magazine’s list of “100 Best Companies to Work For” for the past six years.
Now, what’s interesting about this stock pick is that it comes from Tom Garrity, the ace editor of Cabot Small-Cap Confidential. Tom has never mentioned EOG in that letter, and that’s no surprise; it doesn’t fit the model for his letter. Most stocks Tom recommends have never been noticed by most investors.
But the fact that of the 31 stocks recommended since the start of 2009, Tom still owns 20, with an average open profit of 31.50% per stock is a big reason to take notice of any stock he recommends.
So, you could just plunge in and buy EOG here. Or, you could check out Tom’s regular letter, and see what unknown stock he uncovers next. That’s what I recommend.
Yours in pursuit of wisdom and wealth,
Editor of Cabot Stock of the Month
10 Forever Stocks – 2013:
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