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3 Stocks to Hold ‘Forever’

There’s a lot of focus right now on the year behind us and the year ahead, with a lot of predictions about what’s next.

There are many different schools of thought on the macro picture — whether the eurozone will break up, whether Congress can find a middle ground on spending and deficits, whether consumers are coming back or hunkering down.

But one thing is universally accepted as truth — that baby boomers are getting older and in need of more care, and that the healthcare sector has nowhere to go but up … not just through 2013, but through 2023 and beyond.

Healthcare stocks like Pfizer (NYSE:PFE), Merck (NYSE:MRK) and Johnson & Johnson (NYSE:JNJ) could be your best bets right now, both for the New Year and for the years ahead.

Here are some simple facts about the Baby Boom and the healthcare sector generally.

So patients are living longer and needing more expensive care, providing more money and more jobs to the sector. Those are trends that investors can believe in — and take to the bank.

So if you’re looking to invest long term, consider healthcare stocks. A diversified play via the iShares Dow Jones US Healthcare ETF (NYSE:IYH) or the Health Care SPDR (NYSE:XLV) are great ways to cast a wide net on the entire industry, with top holdings that include all three of the stocks named above — Johnson & Johnson, Pfizer and Merck — along with other big names like Abbott Labs (NYSE:ABT), Gilead Sciences (NASDAQ:GILD) and Amgen (NASDAQ:AMGN).

But if you want a focused play on an individual stock, I like PFE, MRK and JNJ best. Here’s why I like them as a group:

  • Reach: All are huge multinational operations that are entrenched, with about $500 billion in total market capitalization among the trio and about $170 billion in combined annual revenue.
  • Research and cash: All continue to invest heavily in research of new drugs and products, but all also have big war chests — above $18 billion each — to buy out smaller development-stage companies with promise.
  • Increasing access to care: The demographics are clear, but also important is the recent push under the Affordable Care Act to extend access to many Americans. Say what you want about “Obamacare” and some of the companies like insurers that may lose out, but medical device companies or prescription drug companies stand to benefit as they see more “customers” with insurance.

And specific to the three companies, here are a few factoids worth noting that set them apart from other healthcare stocks.

  • Merck: Merck bought Schering-Plough in 2009 for $41 billion and followed that up with $7 billion for Millipore in 2010 — two big-time acquisitions that have been slowly worked into operations. The immediate results have been obvious in the cost-cutting department, most notably with the slashing of 13,000 jobs recently, but the bigger reason for the buyouts here was the research. It may take time for some of the treatments to get to market, but you can be sure that Merck isn’t just benefitting from getting leaner. Case in point — its Alzheimer’s treatment moving toward approval.
  • Johnson & Johnson: Unlike Merck and Pfizer, some of the biggest blockbuster brands that J&J has are actually over-the-counter products — Band-Aids, Tylenol and the like. This consumer focus provides a backbone of stability for the company. And long term, while there have been concerns recently about quality after some recalls and slip-ups, J&J is under the leadership of a new CEO, and the worst of the write-downs related to botched vaccines is behind the company. This stock was never dead, but it did underperform … and now there are signs of a turnaround in the works.
  • Pfizer: Pfizer, like Merck, made a mega-merger a few years ago with its $68 billion deal for Wyeth. It also has big drugs in the pipeline, including an arthritis drug that may be worth $2 billion a year. And looking forward, it could spin off its Zoetis animal-health unit in early 2013 via an IPO to unlock some cash and help focus on its core business. The company is well positioned for growth that will help it capitalize on the broader tailwinds lifting the sector.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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