Best Stocks to Buy and Hold Forever - Amazon S3

Best Stocks to

Buy and Hold

Forever

By Timothy Lutts, Cabot's Chief Investment Strategist and Chief Analyst of Cabot Stock of the Month

176 North Street ? Salem, Massachusetts 01970 ? 978-745-5532 ?

The goal of this report is not to identify stocks that can give you a decent long-term return, like Johnson & Johnson (JNJ) and DuPont (DD). My goal is to identify stocks that can make you rich!

I want to identify the next (AMZN), the next Apple (AAPL), the next Google (GOOG) and the next Tesla Motors (TSLA)--all stocks that were recommended in our flagship growth advisory, Cabot Growth Investor.

The key attributes I look for in growth stocks are these:

1. A product or service or business model that is revolutionary

2. A mass market

3. A company that's still small enough to grow rapidly

4. A company that is not respected--perhaps not even known--by the majority

5. And last but not least, a stock that's trending up, indicating that investors' perceptions of the company are improving--this is important because perceptions are always at least as important as reality

Also, I keep in mind the words of Thomas Phelps, who wrote, "Perhaps the greatest advantage of all in buying top quality stocks without visible ceilings on their growth is that when we do so we give ourselves the chance to profit by the unforeseeable and the incalculable."

In these days where information flows so rapidly that we risk drowning in it, I like Mr. Phelps' reminder that the unknown can be even more important. It reminds me to think long and hard about where a company might be years down the road, when it's far out of sight of the vision of today's analysts.

To collect these stocks, I first went to the Cabot growth analysts, Mike Cintolo and Paul Goodwin, and asked for their top "buy and hold forever" stocks. Then I did my own research and analysis to narrow the list to 10.

Below are the 10 stocks.

1. Zoe's Kitchen (ZOES)

We're all familiar with the success stories of McDonald's, YUM Brands (KFC, Pizza Hut and Taco Bell) and Chipotle Mexican Grill. Restaurants can be great long-term investments because once a successful formula is established, growth is simply a matter of opening new restaurants, first across America and then throughout the world.

Mike Cintolo, chief analyst of Cabot Growth Investor and Cabot Top Ten Trader, uncovered Zoe's, which has 131 restaurants in 15 states.

The restaurant was founded by John Cassimus, who gave it his mother's name and created a menu combining his Greek heritage and the Southern hospitality of Alabama where he was raised. That's the formula that Zoe's Kitchen has parlayed into an impressive growth streak; in the past three years, revenues have grown 46%, 48% and 32%.

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I wish I could say I've eaten in a Zoe's Kitchen, but I haven't. As the company has grown out of Alabama, it's gotten as far west as Arizona, and as far north as Pennsylvania, but it hasn't gotten to Massachusetts. And I haven't seen one in my travels--yet.

In any event, revenues were $227 million in 2015, which is impressive. More importantly, after years of spending money to grow the business and failing to turn a profit, Zoe's was finally in the black last year, with net income coming in at $1.12 million, or $0.06 per share. And that's great. But what matters more to me, especially when it comes to gauging the company's long-term possibilities, are two other factors.

First is the food. America's obese diabetic population needs more healthy foods, like those served by Zoe's Kitchen, with its menu focused on Mediterranean foods. Admittedly, Zoe's is not as cheap as McDonald's--a spinach rollup costs $7.69 and a hummus and salad plate costs $6.99--but it's still affordable for a large segment of the population.

Second is the stock's chart. ZOES began trading in April 2014, just about two years ago, and was up more than 50% in the first six months. Through the first year-plus, ZOES nearly doubled the performance of the market. It eventually got all the way to 45 last July before pulling back in the second half of the year, dipping as low as 24 in February.

Zoe's Kitchen (ZOES)

Since then, the stock has been on a tear, topping 39 in March and threatening to breach 40 as we enter April. Ideally, what happens next is that more and more people become aware of Zoe's Kitchen, as it opens new restaurants, and more and more investors become aware of ZOES (the stock) at the same time.

In any case, there's a ton of potential buyers who could push the stock higher as they learn about the company. And I don't think there's much downside, given the company's proven ability to expand and the fact that it has finally achieved profitability.

ZOES was previously recommended by Mike Cintolo in Cabot Top Ten Trader.

2. Autohome (ATHM)

Autohome is a Chinese stock that came public in December 2013, so if you haven't heard of it yet, you're in the majority.

But the company's potential for growth is huge, which is why it makes the cut for this list of 10 stocks that could be huge winners.

Autohome's business model is simple. It wants to be the center of all consumer-oriented automobile information in China. Today, the company's business is centered on two websites, autohome. and . (You can actually look at these and have Google translate them into something resembling English).

But in the future, the sky's the limit (remember the power of unforeseeable and the incalculable), because the Chinese automobile market, though still rather young, is already bigger than the U.S. market (which has been shrinking) and has much further to go.

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Autohome began operations in 2008, and is still growing fast--revenues grew 70% in both 2013 and 2014, and 59% in 2015. Earnings per share improved 23.5% last year.

Autohome's revenues come mainly from dealers. In 2015, Autohome provided services to 21,705 dealer subscribers, a 22% improvement over 2014.

Until last June, the chart looked great too. ATHM came public at 17, but never traded lower than 26. It peaked at 57 in August 2014, and nearly matched it in May 2015, touching 55 at one point. Then China's stock market crashed, sending ATHM spiraling downward like every other Chinese stock. It bottomed at 22 this February.

Autohome (ATHM)

Since then, however, the stock has recovered nicely, topping 28 in late March. Now trading above its 50-day moving average for the first time since December, ATHM looks like a buy again even in the short term.

But this is a list of stocks to buy and hold "forever," so I'm more concerned with ATHM's potential over the long haul. Long term, I'm very bullish on both the stock and the company, and think that buying now will work out very well in the years (hopefully decades) to come.

ATHM was previously recommended by Paul Goodwin in Cabot Emerging Markets Investor.

3. SolarCity Corp. (SCTY)

SolarCity is one of Elon Musk's companies, the other two being Tesla Motors (TSLA) and SpaceX, the rocket company. That alone is not reason enough to buy it, but it does tell you management is creative and thinks big.

So let's get right to the big part. SolarCity is looking to be the biggest solar power utility in the U.S. and possibly the world. Like many other companies, SolarCity will install photovoltaic panels on your roof. But unlike most other companies, SolarCity will do it for a very small cost.

Instead of paying big bucks to the company, you simply sign an agreement to purchase electricity (at a lower price than you're paying your present utility) from SolarCity for decades. The company retains ownership of the panels, and its profits come from the difference between what you pay (month after month) and what SolarCity pays to the institutions financing its efforts (they expect to profit, too).

Revenues were $164 million in 2013, $255 in 2014 and $400 million last year, so the trend is clear. Earnings are generally invisible, because the company is investing in growth today; it has lost $0.60 per share each of the last two years.

But eventually profits will come, as installed systems outnumber sales efforts. And eventually, if management achieves its goals, SolarCity will be huge.

But SCTY today is a very volatile stock, so if you can get on board at a low point, you'll be much more likely to hang on for the long term.

And that's why I'm featuring SCTY today.

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The company came public in December 2012 at 8 and rode the great bull market of 2013 higher, interrupted by one 46% correction (ouch!).

SolarCity Corp. (SCTY)

In early 2014, SCTY reached as high as 88. By May of that year, it had fallen all the way to 46, and the recent market correction took it all the way down to 16 in February (double ouch!). Since then, it's been on a nice little run, touching as high as 27 in mid-March before pulling back slightly.

Note: The long-term prospects/potential for the company haven't changed a whit. But the short-term fundamentals did, and the market environment did, and as a result, SCTY is now on sale.

But the long-term trend remains up (the stock is still up 85% in just over three years), and there's a ton of potential buying power waiting in the wings as SolarCity transitions from a money-losing startup to a money-making utility that will eventually pay dividends.

So, you could buy here, remembering that this is not a normal Cabot growth stock or a normal Cabot value stock. It's a "possibly-awesome buy while it's down and hold forever stock."

SCTY was previously recommended by Mike Cintolo in Cabot Top Ten Trader.

4. GasLog (GLOG)

GasLog ties into my Energy Revolution theme. It's focused on owning, operating and/or managing a fleet of ships for transporting liquefied natural gas.

The company was founded in 2003, and has been growing revenues steadilysince as its fleet has expanded. These ships are usually inked to multi-year deals, so there's very good visibility about future revenues. And there's even a dividend, currently yielding 6.0%.

But I wouldn't buy GLOG for the dividend; I'd buy it for the great long-term potential. Because the long-term potential for exports of U.S. natural gas is absolutely huge. We have more natural gas than we need in this country, and our natural gas is cheaper than the rest of the world's.

No one knows how big this export market could be, and the fact that the average person has no idea that the U.S. could be a major energy exporter tells me this trend has a long way to go.

In fact, GasLog's management has compared the state of the LNG shipping business today to the state of the oil shipping industry in the 1950s.

And speaking of management, it's interesting to note that GasLog's top two people are first cousins. Chairman Peter Livanos is the shipping expert while Philip Radziwill is the finance expert.

And the finance in these companies can get complex, because the building, owning, leasing and managing departments all have different capital needs and thus can operate better (and pay fewer taxes and more dividends) when they are structured independently.

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