Key Takeaways:
- Small-cap stocks are historically cheap right now, and the Russell 2000 ETF offers diversified exposure to this overlooked part of the market.
- Amazon remains one of the safest long-term investments, with strong growth in e-commerce and cloud computing expected to drive earnings higher.
- British American Tobacco is a cash-flow machine with an 8% dividend yield, steady earnings growth, and backing from top investors like Michael Burry.
- Get accurate financial data on over 100,000 global stocks for free on TIKR >>>
How would you build your portfolio today if you could only buy three stocks and you had to hold for the next decade?
First off, you’d probably want to own at least 10 stocks. Studies show that diversification helps reduce risk by spreading exposure across multiple businesses.
But if you theoretically had to pick only 3 stocks, these 3 stock picks offer a strong mix of diversification, growth, and steady returns.
Each stock provides a different advantage to serve different types of investors, with broad market exposure, a dominant tech leader, and a high-yield cash generator.
1: Russell 2000 ETF (IWM:ARCA)
First up, for diversification, we have the Russell 2000 ETF.
This technically isn’t a single stock because the Russell 2000 is a basket of 2,000 US small-cap stocks, and small caps are companies worth under 2 billion dollars.
Historically, small caps have performed about the same as the overall stock market, but right now, large caps are far more expensive compared to small caps than they have been in the past 10 years.
You can see in the graph below that the large cap to small cap ratio is at a 10-year-high, which means that small caps are historically cheap.
This is important, because the S&P 500 trades at an expensive multiple today. Based on historical data, it’s possible that based on the S&P 500’s current P/E ratio, we might see low returns over the next decade:
So, if you buy the Russell 2000 small cap ETF, you’d probably see average market returns over the next decade, and maybe a bit more upside since small caps are historically cheap.
The next stock is a good stock to buy and hold, but it’s not as foolproof as Stock #3.
2: Amazon (AMZN)
Amazon is one of the safest long-term bets in the stock market today.
Amazon dominates e-commerce and cloud computing, with AWS leading the cloud industry and Amazon Prime continuing to lock in millions of customers.
Despite Amazon being a $2.4 trillion company, analysts expect earnings to grow nearly 20% annually over the next 3 years:
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3: British American Tobacco (BATS)
Last, our most foolproof stock pick is British American Tobacco. This stock is a free-cash-flow machine that pays investors to buy & hold.
BAT owns global cigarette brands like Camel and Newport but is also expanding into reduced-risk products like vaping and heated tobacco, securing its future growth.
It can be very difficult to predict which companies will still be doing well in 10 years, especially if they’re in a competitive industry.
That’s why the thesis for this stock is dead simple:
BAT currently offers an 8% forward dividend yield.
As long as the company continues to pay dividends from its enormous free cash flow (which it should), investors will make an 8% annual return just from the dividend.
Earnings and dividends are expected to grow in the low single digits over the next few years, which is just icing on the cake.
Also, this stock is currently one of Michael Burry’s biggest holdings.
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TIKR Takeaway
These are 3 stocks that could investors could buy and hold for the next 10 years to balance risk and reward.
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks and was built for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. We aim to provide informative and engaging analysis to help empower individuals to make their own investment decisions. Neither TIKR nor our authors hold positions in any of the stocks mentioned in this article. Thank you for reading, and happy investing!
