If I Could Only Buy and Hold a Single Stock, This Would Be It
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You've probably heard the expression, "You shouldn't put all your eggs in one basket."
This is sage advice when investing because you never know what can happen, and you wouldn't want an unfortunate event to destroy the money you've worked hard for. A diverse portfolio of high-quality companies can appreciate over time but still protect you from one lousy egg spoiling the bunch.
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But what if you could only hold one stock?
Technology giant Microsoft (NASDAQ: MSFT) would be my first answer. Five reasons make a compelling argument that every long-term investor should consider buying and holding Microsoft in their portfolio.
1. It's a diverse business
Diversification isn't just for your portfolio; companies that make money in many ways are more dependable, too. Microsoft is a massive technology conglomerate that sells various products and services across the tech sector. It primarily operates three business segments, including:
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Productivity and business processes
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Intelligent cloud
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More personal computing
However, this only simplifies a sprawling business that touches many markets, including personal and enterprise software, computer operating systems, cloud computing, video gaming, artificial intelligence (AI), internet search, social media, and more. Outside of mobile phones, Microsoft is virtually everywhere technology is.
2. Microsoft earns a high return on invested capital
Companies evolve as the world changes around them. Microsoft has thrived for decades in the technology industry, a space where disruption from innovation is almost always a threat. How? The company has done a great job creating value with its financial resources.
A company's return on invested capital (ROIC) shows how efficiently it uses its financial resources to generate income. A high ROIC combined with sustained revenue growth is a formula for tremendous earnings growth and investment returns. Microsoft has grown to generate over $254 billion in annual revenue while averaging a 28% ROIC since 1989. That's why the stock has turned a mere $1,000 investment at its initial public offering (IPO) into more than $6.8 million today.
3. The company has better credit than America
Every company eventually stumbles. A strong balance sheet can act as a safety net, helping plug the holes when revenue or profits temporarily fall off. Microsoft is one of only two public companies with a AAA credit rating, the highest on Standard & Poor's scale. The United States government currently has an AA+ rating, which, to be fair, is only just below it.