What’s one of the biggest mistakes investors make? Selling stocks too soon. It’s smarter to try to adhere to Warren Buffett’s favorite holding period of “forever,” or at least as close to that goal as practically possible.
Three Motley Fool contributors believe they’ve found healthcare stocks that you can buy and hold forever. Here’s why they chose AbbVie(NYSE: ABBV), Eli Lilly(NYSE: LLY), and Johnson & Johnson(NYSE: JNJ).
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Keith Speights (AbbVie): Not too long ago, AbbVie’s outlook probably seemed precarious to outside observers. The company’s top-selling product, Humira, faced the loss of patent exclusivity. Investors braced for a steep sales decline for the blockbuster drug, which would weigh heavily on AbbVie’s overall revenue and profits.
Sure enough, Humira’s sales plunged after biosimilar versions of the drug hit the market in 2023. But AbbVie’s management took action before that happened, to ensure the company would continue to survive and thrive.
Most importantly, AbbVie invested heavily in internal research and development. It now has two successors to Humira (Rinvoq and Skyrizi) that should rake in greater combined sales this year than Humira did at its peak. The drugmaker also made several acquisitions through the years that reduced its reliance on a single product.
I think AbbVie is an especially great stock to buy and hold if you’re an income investor: Its forward dividend yield now tops 3%. The company is also a Dividend King, with 53 consecutive years of dividend increases.
David Jagielski (Eli Lilly): A stock to buy and hold forever should be one that has terrific growth prospects and that also offers a solid dividend. Eli Lilly checks off those boxes in spades. Its dividend may look underwhelming right now as its yield is just 0.8%, but the healthcare company has doubled its payout since 2020.
The most compelling reason to own the stock is Lilly’s commitment to growth. The company has multiple approved drugs in its portfolio today that should generate billions of dollars in revenue in the future, including Zepbound (weight loss), Mounjaro (diabetes), and Kisunla (early Alzheimer’s disease). Its GLP-1 pill, orforglipron, also has a ton of promise; it recently met all primary and secondary endpoints in a phase 3 trial. The company plans to move forward with a regulatory submission for the drug as a treatment for obesity later this year. Eli Lilly is flush with growth opportunities.
Over the past 12 months, it has generated more than $53 billion in revenue — and as recently as 2022, Lilly’s top line was still under $30 billion. The company achieved a lot in the past few years and it has plenty more growth in its future. It’s a stellar investment to hang on to for the long haul.
The stock does trade at a high price-to-earnings multiple of around 50. But given how solid the business is, the premium looks justified for Eli Lilly, as its long-term growth potential is incredibly promising.
Prosper Junior Bakiny (Johnson & Johnson): It takes a particularly strong company to survive for over 100 years. That’s what Johnson & Johnson has achieved. And although the drugmaker faces some legal and regulatory challenges, its business still looks well-equipped to thrive in the long run.
J&J develops and markets medical products that are constantly in high demand. Its list of pharmaceutical drugs is extensive and diversified, featuring medicines for serious diseases, including cancer, which no one wants to skimp on. And revenue from its medical device segment is tied to procedure volume; although demand for some procedures may decline during economic downturns, this metric remains somewhat consistent.
In other words, Johnson & Johnson can generate consistent revenue and profits regardless of economic conditions. It can also overcome patent cliffs and competition, thanks to a deep pipeline and a substantial cash balance, which enables it to pursue acquisitions or licensing deals. And the company can survive the slew of legal issues it faces that might lead to hefty penalties.
The balance sheet is incredibly strong — Johnson & Johnson’s credit rating is higher than that of the U.S. government. And J&J is an outstanding income stock: The company has a streak of 63 consecutive years of payout increases.
Johnson & Johnson has thrived for as long as it has for a reason, and the stock can still generate solid returns for investors who stick with it over the long run.
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David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in AbbVie. Prosper Junior Bakiny has positions in Eli Lilly and Johnson & Johnson. The Motley Fool has positions in and recommends AbbVie. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
