Good advice rarely changes, and the best investments will still be good investments in 10 years. I set out to find companies that are likely to grow profits every year for next 10 years, and that are very unlikely to go out of business. In order to assess the business over the next decade, it helps if the company has a simple business model and is not subject to high rates of technological change. I looked closely at Coca-Cola Amatil (ASX: CCL), with its grab-bag of valuable brands and, I confess, because Warren Buffett owns shares in the parent company….
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Good advice rarely changes, and the best investments will still be good investments in 10 years. I set out to find companies that are likely to grow profits every year for next 10 years, and that are very unlikely to go out of business.
In order to assess the business over the next decade, it helps if the company has a simple business model and is not subject to high rates of technological change. I looked closely at Coca-Cola Amatil (ASX: CCL), with its grab-bag of valuable brands and, I confess, because Warren Buffett owns shares in the parent company. However, Coca-Cola Amatil recently forecast a decline in earnings, and the outgoing Managing Director sold 150,000 shares on market — that counts against it, in my view.
On the other hand, the company is expanding its range of products and aims to increase distribution into Indonesia. Because Muslim Indonesians don’t generally drink much alcohol, I think the potential to increase sales there is considerable. There is also some prospect that the Australian government will eventually legislate to protect Australian fruit growers from cheap imports, and that might help bring the company’s food processing business back from the brink.
Perhaps a better prospect is the biomedical behemoth CSL (ASX: CSL). Now this is a business with a great track record. One man who deserves some credit for that is outgoing Managing Director Brian McNamee, who is leaving CSL this month (after 23 years), to be replaced by Paul Perreault, who has been with the company since the 2004 acquisition of Aventis Behring.
It is a pity for CSL shareholders to lose McNamee. Nonetheless, I believe the company will grow over the next decade (although I’m not as sure that it will grow every single year). The business is leveraged to demand for blood plasma products and vaccines. Many countries in which CSL operates have aging populations, and so it very reasonable to suggest there will be greater demand from existing markets.
Furthermore, CSL (or rather, its subsidiaries) plays an extremely important role in various societies. Indeed, it is of some significance that CSL originally stood for Commonwealth Serum Laboratories. Prior to 1991, it was a statutory authority. The company was incorporated in 1991 and floated in 1994, and while the organisation has obviously evolved, it continues to perform essential services to this day.
In many cases, the larger a company grows, the harder it must work to maintain its position. However, CSL is in a political sweet spot, as it would be foolish for governments to do anything that might interrupt the availability of blood or vaccines. Buyers are also unlikely to quibble about price, availability is much more important. You’ll have to be patient to buy shares at a great price, as the company is currently buying its own shares.
The next company on the list is actually available at a reasonably attractive share price. Jobs website Seek (ASX: SEK) is a household name in Australia, but also has businesses in China, South East Asia, Africa, and the Americas.
Currently, some investors are worried about the “threat” posed by LinkedIn (NYSE: LNKD). I don’t think LinkedIn will stop Seek growing, especially as Seek has significant interests in emerging markets, whereas LinkedIn is focussed on developed markets. The key competitors for Seek, in my opinion, are the old mastheads and their own job board websites. While there is plenty of competition in the space, Seek has proven management with co-founder Andrew Bassat as CEO.
Its strategy of gaining a foot-hold in a number of markets could drive growth for years to come. It is improbable that it will emerge the dominant player in every individual market, but it is conceivable that growth can come relatively easily as the company reapplies the same expertise in different regions of the globe.
These three companies could all grow for the next 10 years. Of the three, I think CSL has the best business and Seek is the most attractively priced. Investors should consider putting these companies on their watch list, and waiting for a market swoon.
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Motley Fool contributor Claude Walker does not own shares in any of the companies mentioned in this article. Find him on Twitter @claudedwalker.