The Daily Telegraph - Saturday - Money
Far horizons Five stocks to hold forever
Investment advice
The holy grail for investors is companies that you can buy, forget about and return to to discover they have made a tidy profit – but they are not easy to find. These “forever” stocks are hard to identify: they need to be established, offer future growth potential, and either fulfil a function that is unlikely to become redundant or be able to reinvent themselves.
Telegraph Money asked five top fund managers to name their stock recommendations to hold “forever”. We should say that no stock is immune from running into trouble, however.
Prudential
Richard Buxton, lead manager of the £2.3bn Old Mutual UK Alpha fund, picked the £48bn pensions firm Prudential. This was also his selection five years ago when he was asked which stock he would buy for a newborn baby.
Mr Buxton explained that it was the “strength of Prudential’s Asian insurance and investment franchise”, and the immature nature of those markets in terms of the products it sells, that made it a compelling investment for the very long term.
“You can genuinely tuck this one away and forget about it,” he said.
Renishaw
The £3.1bn engineering business Renishaw was the choice of Anthony Cross, co-manager of Liontrust’s £2.8bn Special Situations fund.
His fund has held shares in the firm for 20 years and Mr Cross said he hoped “to own it for another two decades”.
The firm designs, develops and manufactures precision measuring and calibration equipment, used in medical diagnostics, among other areas.
“We like that the company has excellent levels of intellectual property; a result of decades of research and development. It has also built a global distribution network,” he said.
Baidu
Chinese search firm Baidu, which is listed in New York with a market value of £61bn, was the top pick of James Anderson, manager of the £6bn Scottish Mortgage investment trust.
Baidu, Mr Anderson explained, has a “Google-like” search engine core, but is still far smaller than Chinese internet peers such as Tencent.
“Its founder, Robin Li, is young, expert, committed and ambitious. Baidu has the chance to be the global leader in artificial intelligence. Given that ‘forever’ takes us beyond the dominance of humans, this seems appropriate,” he said.
You can buy US-listed shares via a number of investment shops although special paperwork may be required.
Relx
Audrey Ryan, who manages £1.2bn at asset manager Kames, picked Relx, the £34bn information and analytics business formerly called Reed Elsevier.
She said that in recent years the company’s management had successfully repositioned the business to focus on faster growing areas. It has shifted from a print business to technology-led data and analytics.
“Relx is a well-invested, wellmanaged, cash-generative global business with market-leading positions,” Ms Ryan said. “These are characteristics we like to see in stocks we plan to hold for the long term.” She added that Relx’s subscription-based model provided good visibility of future revenues.
She said the firm could continue to deliver revenue growth, margin expansion and “high single-digit” earnings per share growth, and increase its cash returns over time. The stock is a bit more expensive than some of its peers, but Ms Ryan said this was justified by its quality.
“We expect further progress as it benefits from new product development and international expansion,” she added. “Few things are forever, but Relx is likely to remain a core position in a number of our funds for some time.”
Rentokil
Rentokil, the £5.4bn pest control business, is the pick of Chris Field, who manages almost £5bn at Majedie, an asset manager.
“Rentokil’s primary services will always be required,” he said. Mr Field said the business was defensive and benefited from growing urbanisation in emerging markets. Rentokil is the market leader in 46 of the 66 countries it operates in, he added.
“Brand is the key. Who would a restaurant manager with a rat problem call: a career-risking cheap local operator or Rentokil?” he said. He added that the pest control market was growing by more than 5pc a year.