Inside Wall Street: Five Stocks for Investors Who Still Believe in Buy-and-Hold
Is the strategy of buy-and-hold investing too old-fashioned, if not passé? It sure has taken plenty of abuse in today's frenzied high-tech and algorithm-powered trading world. But some true believers remain undeterred.
Take Albert Meyer. He's a passionate money manager whose many years as an accounting professor and equities researcher taught him to stick tenaciously with the principles he believes lead to savvy investing. For him, that means hanging onto good-old buy-and-hold. His exhaustive research (he pores over 10 years of a chosen company's 10K reports) gives him the confidence to adopt a longer-term outlook.
All that work has resulted in the consistently market-beating portfolio he manages at Mirzam Capital Appreciation Fund. For the 10-year stretch ending Dec. 31, 2009, Mirzam's portfolio of 24 stocks handily outscored the Standard & Poor's 500-stock index. His stocks delivered a mighty gain of 450% over the 10 years, or an annual gain of 18.6%, vs. the S&P's total decline of 24%, or a yearly loss of 2.7%.
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Meyer makes sure that his portfolio doesn't include shares of companies whose corporate governance and investment practices don't pass muster, in his eyes. He abhors companies that overcompensate their chief executives, especially companies that use stock options as the reward. And Meyer derides outfits that are skimpy in their dividend policies, and he disdains those that tend to boost their earnings by buying back shares. He thinks that kind of money should instead be invested in the company to improve sales and produce real earnings.
Although he buys both large- and midcap companies, not many of the stocks Meyer picks are either widely known among investors or popular on Wall Street. Here, for instance, are five buy-and-hold stocks whose corporate governance practices, says Meyer, are unsurpassed. Plus, they all pay dividends and provide shareholders with stellar returns:
Canadian National Railways (CNI) is Canada's largest railway, operating a 22,000-mile track network spanning Canada from the Atlantic to the Pacific and down through Chicago to the Gulf Coast. Management has used stock options to a minimum (only 1.16% of outstanding shares are dedicated to stock options by year-end 2009). With a dividend yield of 1.6%, the stock is trading at $63.92 a share, up from its 52-week low of $49.
Gerdau (GGB) is the world's second-largest flat-steel producer with over 55 minimills in South America and North America. It's trading at $12.62 a share, up only slightly from 52-week low of $11.85. The company is 67%-owned by Brazil's Gerdau family. About half of its iron ore comes from its own mine in Brazil. The company doesn't grant stock options, but it pays a dividend yield of 2.5%. "It would be difficult to find a stock that provides a better return to shareholders in the past 10 years," says Meyer.
Southern Copper (SCCO) is the world's fourth-largest copper producer with the second-largest copper reserves. Based in Arizona, its main deposits are in Peru and Mexico. Southern Copper is about 80%-owned by Grupo Mexico, and the CEO's annual compensation in the past three years averaged $1.3 million, with about half in cash bonuses. Southern Copper pays a dividend yield of 3.9%. Currently trading at $41.93 a share, the stock is up from a 52-week low of $25.
Tenaris (TS) is a maker of highly proprietary seamless and welded tubular products and related services to the world's energy industry. Its products are used, among other things, for deepwater oil drilling. Essentially debt-free and with cash on hand of about $100 million, the aggregate compensation earned by directors and senior management in 2009 amounted to $18.2 million. Its stock is trading at $42.54 a share, up from its 52-week low of $32, with a dividend yield of 1.2%.
TransCanada (TRP) is engaged in natural-gas transmission and power generation in North America. It owns one of the largest natural-gas storage facilities in the U.S, as well as 20 power plants with 11,770 megawatts of generating capacity. TransCanada is "a true buy-and-hold-and-never-sell kind of stock," says Meyer. Investors would be hard-pressed to find another company "that's as good or better in corporate governance characteristics," he adds. Trading at $35.32 a share, the stock is up from a 52-week low of $30 and pays a hefty dividend yield of 4.4%.
These stocks all provide a decent annual income stream. So, for investors seeking stocks for a traditional buy-and-hold strategy, Meyer's top stock picks may be the answer.
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