Warren Buffett has said that the best time to sell is never. While even the Oracle of Omaha doesn’t quite follow that rule, holding on to stocks for years — decades even — has served him well in becoming one of the great investors.
It will help you, too, and your children for that matter. So we asked three Motley Fool contributors for stocks that meet that description. They chose Tesla (NASDAQ: TSLA), iQiyi (NASDAQ: IQ), and XPO Logistics (NYSE: XPO). Read on to learn why your kids could one day have these stocks in their brag book.
Daniel Miller (Tesla): When thinking about stocks your children might one day brag about, it quickly narrows down to a company that has fundamentally changed the world for the better, or soared in price so much that it created generational wealth. And wouldn’t it be nice if those two things weren’t mutually exclusive?
There are no crystal balls to help us make better long-term decisions. But two things seem certain: The world is headed toward a future with driverless vehicles, and one with electric vehicles. Tesla could play a significant role in technology that drives both those trends, and it could be a lucrative business. But Tesla must get there first, and between a record loss in the first quarter, resorting to temporary tents to boost production, and a potential need for more capital as it continues to burn through its cash pile, investors could be forgiven for wanting to watch from the sidelines.
The good news is that we might be seeing the light at the end of the tunnel. Tesla did reach its goal of producing 5,000 Model 3 sedans in a week, even if it resorted to building cars in tents, and at least one analyst believes Tesla is about to turn the corner. Argus Research analyst Bill Selesky backed his prior buy rating and $444 price target while trimming the 2018 loss estimates from $7.22 per share down to $7.07, while raising his 2019 EPS forecast from $3.20 to $3.57. Selesky believes Model 3 production costs will diminish in 2019, enabling Tesla to generate its 25% gross margin target late in 2019.
The next 12 months will give investors a much clearer picture of where Tesla is headed. But if it can slow the cash burn and become profitable, it’ll go a long way to reaching its potentially lucrative future as a leader in driverless electric vehicles. And that’s a company whose stock your kids would one day brag about owning.
China’s next big entertainment conglomerate
Steve Symington (iQiyi): It doesn’t matter whether iQiyi lives up to its “Netflix of China” nickname, or instead realizes the vision of CEO Tim Gong Yu to ultimately achieve a level of scale and diversification more similar to Disney. We’re still less than four months removed from iQiyi’s IPO, leaving plenty of time for early investors to buy the stock and watch as its long-term story plays out. To the latter end, just last week iQiyi signaled its entrance into the mobile gaming market with its 1.27 billion yuan (roughly $187 million) acquisition of Skymoons — a move Gong Yu stated will “strengthen iQiyi’s media platform and our overall ecosystem.”
Of course, you might be hesitant to jump in now with iQiyi up around 75% from its $18 IPO price. But you should also note that iQiyi stock has pulled back more than 30% from its post-IPO highs last month, thanks largely to the ebbs and flows of Chinese stocks in general amid concerns over a brewing trade war. Considering such a trade war would likely have little to no effect on iQiyi, whose core business doesn’t rely on imports or exports at this stage, I think the pullback provides an excellent entry point for patient, long-term investors looking for stocks their kids can brag about owning someday.
Delivering the last mile of profitability
Rich Duprey (XPO Logistics): According to the American Trucking Associations, nearly 71% of all the freight tonnage in the U.S. travels via truck, and the surprising leader of getting goods from point A to point B is XPO Logistics, the second-largest freight brokerage provider globally. It’s the leader in both Europe and North America, where it’s also the largest provider of last-mile logistics for heavy goods, like appliances and furniture. That alone is one reason why Amazon.com and Home Depot had been rumored at one time to be interested in buying it.
Amazon is now entering the delivery and logistics business on its own, establishing a fleet of trucks to get its packages to customers’ doors. Yet the benefit of XPO is that it operates an asset-light business model that sees it utilizing an extensive network of over 50,000 carriers with a total fleet of more than 1 million trucks. It’s also betting on technology to differentiate itself from the competition by giving its customers greater insight into just where their shipments are at any particular moment.
Shares of XPO have surged 70% over the past year, yet it still trades at a fraction of its sales, though if you look at its valuation based on its multiple of 71 times earnings, it can appear expensive. As the industry leader that is driving away from the competition, it’s arguably able to command premium pricing, particularly since going off next year’s earnings estimates, it’s a much more reasonable valuation of 24 times. I’d suggest that means there is still a lot of upside left in XPO Logistics’ business and its stock.
10 stocks we like better than Tesla
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel Miller has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Netflix, Tesla, and Walt Disney. The Motley Fool has the following options: short September 2018 $180 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot, iQiyi, and XPO Logistics. The Motley Fool has a disclosure policy.