Novartis has proved that it can navigate headwinds such as patent cliffs and a slow economy.
Shopify’s long-term ambitions are off to a great start, given its large addressable market and economic moat.
10 stocks we like better than Novartis ›
Long-term investing is easy and relatively stress-free, at least in principle. All you have to do is purchase shares of quality companies and sit back and watch for years — sometimes decades — as the value of your investment rises. However, there are several factors that make this strategy somewhat more complicated than it appears.
One of them is the challenge of picking which stocks to invest in. Making the wrong choice will not lead to a stress-free ride — quite the opposite. In that spirit, let’s consider two companies that are solid long-term investment candidates: Novartis(NYSE: NVS) and Shopify(NASDAQ: SHOP).
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While medical drugs will always be in high demand, not every pharmaceutical company is a worthwhile long-term investment. Novartis, though, is. Let’s consider several reasons.
First, it has proved to be highly innovative and boasts a deep and diversified pipeline of products across several therapeutic areas. As of Sept. 30, 10 of Novartis’ products had already generated over $1 billion in sales each, and several more are on the way to cross that mark by the end of the year. Most of these products also saw at least decent revenue growth.
Second, Novartis can address one of the biggest threats pharmaceutical companies face: patent cliffs. It recently lost patent exclusivity for Entresto, a medication to treat chronic heart failure. Yet even with generics entering the market, the company’s revenue and earnings growth remain decent. In the third quarter, the top line increased by 8% year over year to $13.9 billion, while earnings per share came in at $2.25, 9% higher than the year-ago period.
These are solid — though not excellent or exceptional — numbers for a pharmaceutical giant. But in the context of a patent cliff for a best-selling drug, they’re much more impressive.
How did Novartis pull it off? The company’s diversified lineup helped. That includes relatively new launches, like Fabhalta, a medicine for paroxysmal nocturnal hemoglobinuria (a rare blood disease) that first earned approval in the U.S. in December 2023. Novartis’ ability to replenish its lineup and earn label expansions for existing products should allow it to navigate patent cliffs in the future as well.
Third, Novartis is a fantastic dividend company. It has increased its payouts for 28 consecutive years and currently offers a forward yield of 3%, higher than the S&P 500‘s average of 1.2%.
Novartis’ long streak speaks volumes about its ability to consistently record revenue and earnings over extended periods, even when the economy isn’t performing well. That’s the kind of business long-term investors want in their portfolios.
Shopify is having a great year, with the stock up 50% on the back of excellent financial results. Management has been open about its desire to build a 100-year company — one that can prosper for at least a century. And so far, this project is off to a great start. One of the main reasons is that Shopify has established itself as a leader in a corner of the e-commerce market, an industry that is here to stay and still has massive white space ahead.
The Shopify platform makes it easy for businesses to start online shops. The process is straightforward, yet it doesn’t compromise creativity and uniqueness. Shopify offers a wide range of customizable templates and an app store featuring even more specialized options. That’s in addition to the many other services it offers merchants, which enable them to run their businesses efficiently — marketing and analytics, inventory and shipping management, and more.
Despite the competition in this niche, Shopify held a 12% market share as of the end of 2024 — a number that had grown from 10% at the end of 2023. Furthermore, Shopify benefits from a competitive edge due to switching costs, as merchants have invested time and money in building their storefronts and won’t be eager to switch unless they have a compelling reason.
One criticism of Shopify was that it wasn’t yet profitable, but it has significantly improved its bottom line in recent years and has turned in a net income in three out of the last four quarters. Earnings and margins have been trending upward since it divested its logistics business.
The company appears well-positioned to continue dominating its corner of the fast-growing e-commerce market for a long period. That’s why it’s an excellent stock to hold on to for a while.
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Prosper Junior Bakiny has positions in Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.
2 Top Stocks to Buy and Hold for the Long Term was originally published by The Motley Fool
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