The S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has risen 13% so far this year and has well and truly recovered from the financial crisis that enveloped the world five years ago.
It is now, more than ever before, that investors must focus on companies with long-term growth potential and capable management teams able to ride out the inevitable volatility to come. A time horizon of 20 years may seem like an eternity, but these three companies have proved they would be worthy candidates.
1. Telstra (ASX: TLS)
It’s hard to fathom a world without the luxury of instant communication via internet or mobile phone. Although telecommunications technology keeps rapidly advancing, Telstra is a leader in the industry and has expressly stated it will be at the forefront of the continually evolving technology.
At the company’s AGM last week, Telstra Chairwoman Catherine Livingston noted the company’s ability to change: “Telstra has adapted well to change in recent years, creating a new business model based on the demand for data, and network based solution delivery. To grow as a company, we need to constantly adapt.”
This is a great sign of a company to hold for 20 years. Investors will also be buying into steady cash flows and a reliable dividend of 5.5%.
2. Fisher & Paykel Healthcare (ASX: FPH)
Breathing mask and respiratory equipment manufacturer Fisher & Paykel is a natural choice to hold for 20 years given the changing global demographics and growing populations that will naturally expand the market for the company’s products.
I chose Fisher & Paykel over competitor Resmed (ASX: RMD) because it is currently slightly cheaper on a price-to-earnings ratio and pays a better dividend.
3. Woodside Petroleum (ASX: WPL)
The thought of holding a large energy producer for 20 years may worry some investors, but given Woodside’s large-scale growth plans, 20 years is a perfect period of time. Woodside’s biggest LNG projects are still in their infancy, and have long lead times before production. In the meantime, Woodside enjoys strong cash flows from its Pluto LNG and Northwest Shelf production sites and pays a 4% dividend.
The next two decades will see plenty of wobbles for share markets and economies, just as the last two have. Successful investors will want to take Warren Buffett’s approach of buying great companies and holding onto them for the long term.
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Motley Fool contributor Regan Pearson owns shares in Fisher & Paykel Healthcare.