2 Stocks I Plan to Hold for the Next 20 Years

Key Points

• One is a diversified healthcare giant with a vast product lineup and an impressive dividend program.

• The other is a niche leader with a lineup and pipeline that should help it perform well through 2046.

One of the best ways to earn great returns in equity markets is to buy high-quality stocks and hold them for a long time. But it’s not always simple to know which corporations have what it takes to perform well over a couple of decades. Investment theses evolve, technological progress makes some companies’ products obsolete, competitive advantages disappear, and regulatory changes threaten to erode profits in some sectors. Even with all these potential challenges (and many others), I intend to hold several stocks, notably in the healthcare sector, for the next 20 years. Here are two of them: Johnson & Johnson (NYSE: JNJ) and Vertex Pharmaceuticals (NASDAQ: VRTX).

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1. Johnson & Johnson

It’s worth pointing out that Johnson & Johnson has been around for well over two decades. In fact, the company’s origins date back to the late 1800s. Johnson & Johnson has remained relevant and successful all these years thanks to the strengths it still possesses. For instance, the drugmaker is an innovator. Johnson & Johnson markets dozens of drugs and medical devices and routinely launches brand-new products in both segments. That allows the company to manage issues such as patent cliffs while navigating a deeply competitive healthcare industry.

Over its history, Johnson & Johnson has survived significant legal and regulatory changes — such as the introduction of Medicare and Medicaid — as well as wars, recessions, and pandemics.

Second, Johnson & Johnson has a wide moat. It benefits from patents that grant its pharmaceutical products a window of protection before biosimilars or generics enter the market, along with some degree of pricing power. Johnson & Johnson also has a strong market presence, with a recognizable brand among physicians, a large sales team, deep manufacturing expertise, and more. Johnson & Johnson has honed these parts of its business for decades, and they aren’t easy things to replicate.

Third, Johnson & Johnson has a strong balance sheet. The company holds the highest credit rating from S&P, which demonstrates that it can meet its financial obligations while retaining ample funds to invest in the business. These (and other) aspects make Johnson & Johnson likely to thrive over the next two decades, and investors should also consider the dividend. The drugmaker is part of the Dividend King, a group of companies with 50 or more consecutive annual dividend increases. This streak also shows that Johnson & Johnson is capable of performing well beyond 2046.

2. Vertex Pharmaceuticals

Vertex Pharmaceuticals has beaten broader equities over the past two decades. The company has been especially successful in the market for medicines that treat the underlying causes of cystic fibrosis (CF), a rare disease that damages internal organs. Over the next decade, Vertex can still generate significant revenue and profits from this franchise alone. Here are four reasons why. First, the company is the only game in town.

With no competition from other drugmakers to speak of, Vertex benefits from a monopoly here, which grants it significant pricing power. And although many have tried to develop competing medicines, they continue to fail. Second, CF patients are living longer, partly thanks to Vertex’s work. Unfortunately, there is still no one-time cure for the disease, so they must continue taking the company’s drugs regularly and indefinitely. Third, its most important products won’t lose patent exclusivity until the late 2030s.

Lastly, Vertex should succeed in developing newer, better medicines, including some for the few CF patients who aren’t eligible for any in its current lineup. So, the CF business is relatively safe for the next decade. But what about the 10 years after that? Vertex Pharmaceuticals is working on newer medicines that could help it drive strong returns through 2046. The company should soon request approval for two of them: Povetacicept, an investigational medicine for a kidney disease that just aced phase 3 studies, and zimislecel, a candidate targeting Type 1 diabetes.

Vertex has several other pipeline projects. The company should be just fine — and continue posting strong returns — after its CF business ceases to be its main growth driver.

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Prosper Junior Bakiny has positions in Johnson & Johnson and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.