Username
Password
Forget Password?
  1. Indices
  2. Commodities
  3. Currencies
Straits Times 3,546.91 +5.00 +0.14%
KLSE Composite 1,824.39 -4.24 -0.23%
Hang Seng 32,039.16 +55.75 +0.17%
Dow Jones 26,115.65 +322.79 +1.25%
CNBC Fast Money: Love Of A Lifetime Stocks
Aspire, Hot Picks | 29 July 2015
By: Chen Xushuang
Articles (26) Profile

To commemorate US’s 239th birthday, CNBC’s “Fast Money” team picked several stocks that could possibly be held for the next 239 years to come. However, 239 years is too long a period to make absolute predictions.

We cannot even say for sure which companies would still exist in next five years, let alone the coming century, or more than two centuries for that matter.

Nevertheless, financial experts have named Google and Lockheed Martin (LMT) as companies stocks to “buy and hold forever”.  While there are many convincing reasons behind their beliefs that these stocks are the love of a lifetime (or even longer), we should also examine the challenges that the companies face.

How Future-proof is Google?

Google is extremely wealthy. In 2014, it had posted USD14.4 billion in profits, which is a 12 percent increase from 2013. With this kind of income, Google can make smart acquisitions and buy into a promising market. Successful examples include its acquisition of Android in 2005 and YouTube in 2006. The former is the most widely used operating system in the world, and the latter is a powerful tool into the mobile advertising market.

Google is also renowned for placing a high premium on innovation. Its workplace culture encourages engineers to pursue independent passion projects, and this provides a favourable environment for successful projects such as AdSense and Gmail. Google also makes use of crowd funding, social decision making and crowd marketing to develop and market their new innovations such as Google Glass. This relatively new way of consumer engagement in cutting-edge technology offers us insights into Google’s crowd-based future.

On the other hand, Google’s incessant experimentation and its habit of boldly chasing big ideas come with their perils. Apart from the successful case studies, Google has also introduced many now-defunct services such as Google Wave and Google Helpouts. Its new ideas, despite being bright, might actually spark concerns among investors that Google is losing touch with reality. Investors are concerned that Google is directing too much attention and resources towards the ancillary aspects of the company instead of growing its core business. In fact, Google’s recent hiring and spending curb seems to be the factor that drove up its stock price by around 3 percent. The rationale behind it might be that investors saw that as a sign of Google trying to increase efficiency by being more judicious.

Even as a giant in search and ads, Google faces competitive opponents such as Bing, Facebook and Pinterest. With its competitors chipping away at its core business, Google’s global advertising avenue has seen a decline for the past three quarters.

 

While the growth of Google’s competitors is not expected to have immediate catastrophic effects on Google, one could not be so sure what changes would take place 239 years from now.

How Well can Lockheed Martin Defend Its Position?

The defense industry is one that is longstanding and of high national importance. Lockheed Martin (LMT) not only stands out as one of the world’s premier companies in aerospace, defense, security and related technologies, but also as the world’s largest defense contractor based on revenue for fiscal year 2014. Its major customer is the US government and its allied agencies, and their clients include a large number of companies on the Fortune 500 list.

Besides having a strong existing client list and network, LMT is also seeing steady growth in the cybersecurity market. Like Google, LMT has made many acquisitions, which helped to add capabilities in all the areas of its business, as well as spur innovation and push technological boundaries.

LMT also sees future opportunities in the Middle-East, where volatile war situations due to terrorist threats demanded for high-tech weaponry and defense systems. Similarly, mounting tensions between China and its neighbouring countries also presented promising opportunities for LMT in the Asia-Pacific region. That might enable LHM to secure new international contracts in future.

However, various challenges surface too. Firstly, LMT is very dependent on government contract, and its revenue would be affected when the US government, which contributes 80 percent of LMT’s revenue, implements budgetary cuts in defense spending. So unless LMT can successfully diversify its business and expand into new markets in future, its growth will be tied to and limited by US government spending.

Furthermore, LMT ranks high when it comes to contractor misconduct. According to the Project on Government Oversight database, the company has had 61 instances of misconduct to date since 1995, which amounted to USD 606.6 million in penalties. Thus, despite being a dominant player in the US defense market, LMT would have to keep fighting to cut costs, come up with new business expansion strategies, become more innovative, and shed its past negative reputation, or risk losing out to its competitors in the long run.

From what we see now, Google and LHM undeniably have some very enticing and promising attributes, but blind devotion for a lifetime? Perhaps it is not that simple.

As a Communications Studies graduate specialising in journalism, Xushuang is keen to observe and explore issues that readers want to know more about, and to deliver quality content through engaging writing.

Please click here for more information about this author.


Join The Conversation
The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

All Rights Reserved. Pioneers & Leaders (Publishers) Pte Ltd. Best viewed with Mozilla Firefox 3.5 and above.