Ten Companies To Own For The Next Decade (AEP, AWK, CSCO, DG, XOM, KMB, GE, RSG, TEVA, DIS)

Picking stocks for a decade is no easy task.  It might as well be for a lifetime because there probably will be two more bear markets and two more bull markets between now and then.

Investors looking over that long a time horizon will need to analyze loads of data on everything from consumer spending to capital expenditures to potential changes in regulations. This list is not trying to pick the next 10-bagger.  In fact, many of these stocks for the next decade are not high growers. The intent here is to show winners which can offer the most upside for long-term investors over the next decade.

In the world of utilities, there is American Electric Power (NYSE: AEP) in electricity and American Water Works Company, Inc. (NYSE: AWK) as the best water company.  Almost a utility is garbage collection, highlighted by Republic Services Inc. (NYSE: RSG).  Cisco Systems, Inc. (NASDAQ: CSCO) is the sole tech for the next decade, and Dollar General Corporation (NYSE: DG) is the sole retailer.  In other stocks for the next decade, we have selected are Exxon Mobil Corp. (NYSE: XOM) in energy, Kimberly-Clark Corporation (NYSE: KMB) in consumer products, General Electric Co. (NYSE: GE) in conglomerates opportunities, Teva Pharmaceuticals Industries Ltd. (NASDAQ: TEVA)  in drugs, and The Walt Disney Company (NYSE: DIS) in media and entertainment.

There are some key takeaways here when you consider a one decade outlook.  The list has no food companies.  America’s battle of the bulge will come to a head over the next decade and many food producers may wind up losing.  Most technology companies didn’t make the cut because the flavor of a decade is not always the flavor of the next decade: Microsoft was the 1990’s and Apple was the 2000’s.  Many things can change from patent suits to interoperability issues. Consumers are also fickle.  No internet stocks were considered since business models in the sector often change.  Major pharmaceutical and biotech companies face significant challenges from D.C. and from patents and competition, and how well those are overcome remains to be seen.  Most retail and apparel companies did not make the cut because they are effectively new companies with new products two or three times a year.  Also missing is banking and finance, although GE may make up for that inside its conglomerate.  There are also many runner-ups that could have been considered for the list, and perhaps a runner-up list will follow soon.

All of these companies are highly established companies with solid histories and solid outlooks for secular trends.  None have business models which the new-normal or post-new-normal will act as a rapid move against the companies mentioned.

This list should be the novice investor’s watch list of go-to stocks to consider adding to their portfolios when a buying opportunity presents itself. The “buy and hold” strategy of yesteryear did not work in the previous decade and the idea for the decade ahead is to find a diversified portfolio of investments to protect yourself regardless of the market’s direction.

1. American Electric Power (NYSE: AEP) is one of the largest publicly held electric utilities in America.  The company provides power generation, transmission and distribution services to more than 5 million customers in nearly a dozen states.  It also has diverse sources of generation including coal,  natural gas, along with hydro, wind and solar.  The company is very dividend-friendly with years of rising payouts and close to a 5% yield.  We consider it among the safest dividends in the sector. AEP has promoted the “Defend My Dividend” campaign that’s fighting against potential tax increases at the end of the year.

2. American Water Works Company, Inc. (NYSE: AWK) is another defensive core holding for long-term investment portfolios and is our  best pure-play water stock pick.  It is “American again” after the RWE spin-off and is the largest public U.S. water and waste water utility with about 16 million customers in 35 states and two Canadian provinces.   American Water offers investors a near-monopoly in its local markets with opportunities for growth through acquisitions.  While cap-ex concerns may be there, there is plenty of room for water utilities to raise prices.  The 3.6% dividend yield will almost certainly grow over time.  The downside for opportunistic value investors is that it rarely goes on sale via stock price drops.

3. Cisco Systems, Inc. (NASDAQ: CSCO) is the leader in networking and communications equipment now and will be in the decade to come.  Future growth will come from core router, switch, data and the growth of wireless technology in communications equipment.  The move into data centers and other areas will almost certainly allow for steady growth in the decade ahead.  Cisco will also benefit from the growing need of telecom carriers to upgrade their networks.  The company was dead money over the last decade despite its solid growth and spending billions on share buybacks to keep dilution low.  The company’s $40+ billion cash arsenal offers shareholders  stability and allows it flexibility to make acquisitions.  Its move to begin paying dividends will offer investors a cushion against market volatility.

4. Dollar General Corporation (NYSE: DG) is the king of the dollar stores. It is almost certain that the consumer trends of ‘the new normal’ and the ‘post-new normal’ will remain favorable for this segment.  Dollar stores gained sales when the economy was beaten-down and continued to grow as it improved.  The retailers also began stocking merchandise priced above $1.

The company was taken private by KKR, Goldman Sachs, and Citi in 2007 and came public on the cheap two years later.  Its shares have underperformed rivals Dollar Tree and Family Dollar, but they should rebound over time.  Recent debt upgrades from ratings agencies are likely to continue and it seems that even the cautious analysts expect the share price to rise.  The company has operated since 1939 and now has about 8,900 stores in 70% of the states in America.  While there is no dividend now, Dollar General will generate significant cash flow after debt is paid down or refinanced that could go toward dividend payments.

5. Exxon Mobil Corp. (NYSE: XOM) is the king of integrated oil with roots dating to Standard Oil. With it being the largest company in America, investors may be concerned over the billions of dollars required to buy up its shares at a rate that will drive the price higher. Its valuation is cheap as forward P/E ratios get close to 10 and its 2.5% dividend yield has much more room to grow.  Its calculation of proved reserves almost equally between liquids and gas rose to 23.3 billion oil-equivalent barrels at the end of 2009.  If Warren Buffett or any of his successors ever want to invest their billions in oil, they need to consider Exxon Mobil.  Its recent acquisition of XTO gave it a large move into natural gas, which has acted as a cap on the stock compared to peers because of 2010 nat-gas pricing. In energy trends, the one constant is that nothing lasts forever.  The potential natural gas demand ahead is a real hedge against oil that was done as prices were cheap on the gas side of the equation.

6. Kimberly-Clark Corporation (NYSE: KMB) has been around since the 1800’s and is one of the top consumer products companies in the world.  Its products include paper towels, tissues, surgical drapes and gowns.  The consumer products industry is usually defensive for investors, yet growth can be seen despite rising in-store promotional expenses.  P&G is exponentially larger, while Colgate-Palmolive is about 150% the size of Kimberly-Clark.  Consumer products have always faced pressure from generic and private label rivals, yet they seem to keep slowly growing through time.  Emerging markets are perhaps the biggest potential for growth area for the industry. Kimberly-Clark also leads peers in dividend yield by far with a 4.20% payout.  Despite the high payout, the company can keep raising its payouts and it has a history of raising its dividends.

7. General Electric Co. (NYSE: GE) is back to being the best positioned of the conglomerates for investors seeking growth and income after the economic meltdown.  The company’s woes are farther and farther away, with NBC Universal on the way out and its financial services problems coming under control.  The company could also decide to unload its appliances unit again.  Its positions in health care, energy, water filtration, jet engines and rail engines will assure GE’s future growth.  Shareholders will also be helped by a normalization of the dividend and the resumption of share buybacks.  The internal long-term growth targets are at about 20% return on capital yearly, but GE has kept making acquisitions to help its growth.  It seems long ago that GE was a $40 stock, but if the markets have shown anything it is that anything is possible.  As GE’s earnings grow, so will its dividends.

8. Republic Services Inc. (NYSE: RSG) is often so close in valuation to Waste Management, Inc. (NYSE: WM) that investors may not think there is much of a difference between the two companies.  The business of waste management has many pitfalls, but it also many upsides.  Contracts tend to be long-term and the barriers to entry on a large scale are very high.  These two companies are close to what many investors would consider a duopoly. Republic may have more room for strategic acquisitions, but major deals inside the U.S. are unlikely. Republic is the smaller of the two at a market cap of about $11 billion versus over $16 billion for its rival.  Republic is also cheaper when it comes to forward valuations, although the 2.8% dividend yield has significant room to improve.  When it comes to strategic investors, Republic has become a deep-dive effort for Bill Gates’ Cascades investment vehicle with a seat on the board and with Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A) behind Gates to boot.

9. Teva Pharmaceuticals Industries Ltd. (NASDAQ: TEVA) has already been a large growth engine while many drug and biotech companies slumped.  The Israel-based company is perhaps the biggest winner when it comes to international expansion and the growth in generic drug sales.  The company recently backed targets out to 2015 when it expects $31 billion in revenue and earn about $6.8 billion.  The company also expects more than $9 billion in its own branded product sales by 2015, and its respiratory product business is expected to grow by about another 150% in the next few years following many new FDA submissions.  Generics will likely remain around 70% of its business and it aims to diversify branded sales away from dependence upon Copaxone for MS with nearly $3 billion in 2009 sales.  Shares are no longer posting gain after gain and the goal of the company is for ongoing and steady growth.

10. The Walt Disney Company (NYSE: DIS) is the king for media and entertainment consumers and investors alike.  The company’s holdings include extensive movie library, movie studios, major merchandising, theme parks, vacation destinations, cruises, ESPN, Marvel, Pixar and ABC.  Most units will do well through time and management is stable.  So far in 2010, Disney has yet to recapture its former high share prices of the late 1990’s and in 2000.  Where Disney can improve now is dividends.  Its annualized yield of 0.9% is far too low, and it is an area we expect significant hikes for shareholder payouts over the next decade.

JON C. OGG