After a painful 2022, the major indexes have staged a dramatic recovery – with the S&P 500 rallying over 30% and the Dow Jones Industrial Average surging 26% to sit just 2.3% shy of its January 2022 peak. This powerful rebound has many sensing a new bull market emerging from the ashes of last year’s bear.
And history shows determined long-term investors can realize enormous gains from sustained bull runs. Since 1929, the average bull market has lasted 3.5 times longer than the average bear. This highlights the wisdom of durable buy-and-hold approaches over fruitless market timing attempts.
With this perspective, here are three best-in-breed Dow stocks perfect for buy-and-hold portfolios.
Visa’s Virtually Impenetrable Competitive Moat
When evaluating forever stocks, sustainable competitive strengths are vital. Companies that can maintain market share despite rivals tend to deliver market-beating returns over time. And few possess an economic moat as deep and durable as Visa (NYSE: V).
As the runaway leader in digital payments, Visa has constructed an enormously profitable ecosystem benefiting from substantial network effects. In 2022, its payment rails handled a staggering $14 trillion in purchases across over 260 billion transactions worldwide.
To put that into perspective, Mastercard – its closest competitor – processed $8 trillion in volume over 150 billion transactions. After 65 years of growth, Visa has built an almost impregnable payments duopoly that grows stronger every day.
This self-reinforcing cycle allows Visa to invest aggressively into security, technology, marketing, and rewards – both deepening its moat and attracting more merchants and customers.
Over the past decade, Visa has maintained a 47% average profit margin alongside 255% free cash flow per share growth – that’s more than 13% annually. Powered by this surging cash generation, Visa has delivered 19% average annual share price gains since its IPO in 2008 – double the S&P 500’s performance.
Boasting an unassailable competitive position, extreme profitability and prodigious cash flows, Visa checks all the boxes for a long-term outperformer.
American Express: An Iconic Brand Anchors Customer Loyalty
As the world’s third-largest card network, American Express (NYSE: AXP) processed a towering $1.5 trillion in purchase volume across 10 billion transactions last year. Unlike pure-play processors Visa and Mastercard though, AmEx holds credit card loans on its balance sheet – earning lucrative interest income from revolving credit balances.
In downturns, lending activities can spell trouble for banks and card issuers as defaults spike. But AmEx boasts a uniquely resilient customer base – bonded to the brand through enduring perception of prestige and luxury.
Affluent cardmembers are drawn to AmEx’s aura of exclusivity, high-end benefits, and white-glove services – cementing extraordinary loyalty even in recessions. And the company reinforces this aura through card products selectively offered by invite-only and partnerships with aspirational luxury brands.
This powerful brand prestige provides a bulwark when times get tough. In Q3 2022, AmEx’s 2.2% credit card net write-off rate remained far below the industry average of 3.8% – evidence that cardmember resilience through cycles.
For investors who appreciate recession-resistant business models underpinned by competitive intangibles, AmEx deserves consideration as a long-term portfolio anchor.
Chevron: The Best-in-Class Dividend Growth Stock
As an integrated oil major, Chevron (NYSE: CVX) is often painted as vulnerable to the whims of commodity markets. But a balanced upstream and downstream business mix focused on cash flow consistency has made it a reliable dividend payer through every environment.
While Chevron’s drilling, exploration and production operations benefit handsomely when prices rise, the earnings generated can prove unpredictable amid cycles of energy boom and bust.
The company’s downstream refining, fuels marketing, pipelines, and gas station activities however generate predictable incomes – smoothing out oil and gas price volatility to protect investor payouts.
Chevron also sports an enviable 36-year dividend growth streak – raising its payout during oil crashes and supercycles alike. Since 2000, Chevron has grown its dividend nearly 7% annually – the second highest rate among the oil majors.
And with a targeted $10 billion plus investment in lower carbon solutions like renewable fuels and offsets by 2028, the company is keeping pace with the global energy transition – providing a bridge between the old and new energy economies.
For investors seeking durable payout growth from the traditional energy sector, Chevron is quite simply one of the best names to own for the ultra long-term.
The Key Takeaway
With optimism mounting, there’s a sense we could be on the cusp of another epic bull run after 2022’s devastating bear market. And history shows disciplined long-term investors can build tremendous wealth by holding quality stocks through sustained uptrends.
The three Dow components profiled above possess wide economic moats, strong pricing power, excellent leadership positions in their industries and have demonstrated an ability to deliver consistent market-beating total returns across market cycles.
For investors with truly long-term time horizons, Visa, American Express and Chevron represent low-risk blue chips trading at attractive valuations today. This pullback has created a rare opportunity to initiate positions in these stocks – with a view to hold for years if not decades to come.
