Many new businesses don't even last five years. Few get beyond a decade, and only the best of them -- typically those that have built solid economic moats and can continue improving their financial results -- make it to the 20-year mark.
Corporations of this type exist on the market and are sometimes relatively easy to pick out. Let's consider two examples: HCA Healthcare(NYSE: HCA) and Netflix(NASDAQ: NFLX). Here's why investing $500 in either stock and holding for the next two decades isn't that hard a call for long-term investors.
1. HCA Healthcare
Few industries are as certain to remain relevant in the next 20 years as healthcare. And those companies that provide much-needed facilities where patients receive routine treatment, undergo surgical procedures, or are rushed to in emergencies won't go out of style, either.
HCA Healthcare is one of the leaders in the healthcare sector as one of the largest hospital chains in the U.S., a position that has allowed it to generate steadily growing revenue, earnings, and cash flow in the past 10 years.
HCA Healthcare has also generally grown its market share over this period. Yes, there were some abnormalities during the pandemic years. Occupancy levels in HCA's hospitals (one key determinant of its revenue) were up and down because of the outbreak and the surges (and subsequent drops) in the number of coronavirus patients. Overall, it handled these challenges well.
One of the company's secrets to long-term success is to build deep relationships with various players in the healthcare sector, be it physicians, third-party payers, or patients. It does so partly through its investment in innovative clinical equipment and technology, an obvious selling point for doctors and their patients. Another crucial aspect of HCA Healthcare's business is the fact that its industry is capital-intensive.
Building a network of healthcare facilities takes time and money -- lots of it. Companies that are already established have a clear advantage. This grants HCA an economic moat, so it won't be easy to dethrone the company as long as it continues to keep pace with the rapidly evolving medical sector. And so it will benefit from an aging population and the subsequent increasing healthcare spending.
We can expect the company's financial results to remain strong and the stock to continue beating the market. Its business might not be the most exciting, but overall, it looks like an excellent option for long-term investors. At just under $237 each, investors can grab two shares of HCA Healthcare with $500.
2. Netflix
Netflix is a pioneer in the streaming industry. Its role in bringing this new method of watching television to the forefront has helped it deliver excellent financial results regularly and crush the market in the past 20 years.
However, some might point out that unlike the previous decade, Netflix now faces a sea of competitors. Aside from that, how much more can the company grow? It has become a household name already, and for many, only a little is left in the tank. Though real, these challenges are sometimes a bit overstated, at least in my view. Competition isn't a death sentence for Netflix for at least two reasons.
First, competing streaming platforms can coexist and actually sometimes complement one another in the eyes of consumers since they often offer vastly different libraries of content. Some focus on providing access to legacy movies and shows, others pump out original content, and still others are mostly centered around sports. Netflix's original content is a centerpiece of its strategy.
The company's competitive edge relies on gathering a vast amount of data on viewer habits and preferences, which helps it steer its content creation in the right direction.
Second, Netflix has adapted its business to the changing times. The company now offers a lower-priced ad-supported subscription option and has cracked down on password sharing, which was taking a bite out of its top line.
Despite Netflix's and streaming's seeming ubiquity, the industry still has massive potential despite streaming making significant gains versus cable television viewing. In June, streaming accounted for 37.7% of television viewing time in the U.S., rising by a little over 11% since May 2021. In other words, there're substantial gains yet to be captured, and the streaming takeover should continue. However, the U.S. is one of Netflix's most penetrated markets.
In less mature regions, streaming's share of television time is much lower. There are also demographic differences in who watches cable versus streaming, with people over 65 being much less likely to have cut the cord. But things change over the long run. Netflix's goal of replacing linear television won't happen anytime soon, and thanks to the brand name it has built and its massive existing ecosystem, the company should continue performing well for the next couple of decades.
Netflix's shares trade for about $355 each, so investors can get one with $500 -- with plenty of change to spare.
10 stocks we like better than HCA Healthcare
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and HCA Healthcare wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of October 9, 2023
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends HCA Healthcare and Netflix. The Motley Fool has a disclosure policy.
