10 stocks for the next 10 years

In this episode of The Pitch, TMS Capital's Ben Clark names 10 stocks investors could hold and forget about for the next decade.
Ally Selby

Livewire Markets

Note: This interview was recorded on Wednesday 6 December 2023. You can watch the video or read a transcript below.

Despite the ASX not going anywhere over the past two years, it's been an incredibly volatile time for investors. We've never been more focused on the macro - whether it be the Reserve Bank's aggressive hiking cycle, worsening geopolitical tensions, sticky inflation, or the risk of a global recession. 

So, to help you rest easy at night, Livewire reached out to TMS Capital's Ben Clark so that investors can take a longer-term view. 

In this episode of The Pitch, Clark shares four factors that he believes are important when it comes to investing over the long term - including rock-solid balance sheets, industries with structural tailwinds, impressive undisruptable moats, and management teams that are aligned with long-term shareholders. 

He also outlines the top three businesses on the ASX in each of these categories, as well as one holy grail stock that possesses all these attributes and more. 


Ally Selby: Hello and welcome to The Pitch, brought to you by Livewire Markets. I'm Ally Selby and it's incredibly uncertain out there at the moment. So to help you take a longer-term view, we're joined by TMS Capital's Ben Clark for 10 stocks for the bottom draw for the next 10 years. It's going to be a really good episode. Thank you so much for coming on the show, Ben.

Ben Clark: You're welcome. I'm hoping I can remember all 10, but we'll get there.

4 factors to look out for when investing over the long term

Ally Selby: What are some of the important factors you think investors should consider when trying to invest over a 10-year time horizon?

Ben Clark: It's interesting because I think it's the same as a short-term time horizon. But if you are truly buying a business and you thought, "I'm not going to look at that share price for the next 10 years," it probably adds some weight. Number one's got to be the balance sheet. You've got to have a business that can't blow itself up because there's a shock to its industry, or there's a shock to the market/to the economy. Over a 10-year period, that's probably a reasonable chance to happen, and you need a company that can cycle through that and hopefully even take advantage of it.

Number two, moat. It is such an often-used word. It almost seems a bit passe, but it applies. And maybe the best way to think about a moat in this context is a business that can't be disrupted because the launch of AI and the change that is coming everywhere is a real threat to a lot of businesses. So you want to think about a business that will still be entrenched in another decade's time. 

Management, I think it's always important. The reason why this is interesting is because really good managers will be thinking 10 years ahead. They won't be thinking about when they're going to bail out in two or three or four years and where they're trying to get the stock price to then. You want a company that's making decisions in long-term shareholders' interests. 

And then I think structural tailwinds have always been something I come back to. It doesn't necessarily mean you'll get long-term earnings growth, but if you've got good management, a good balance sheet, and you're operating in an industry that is forecast to grow significantly, you've got a big headstart.

3 businesses with impressive moats 

Ally Selby: Let's start with moats first. Are there three businesses that come to mind that have really strong moats on the ASX?

Ben Clark: So I'm trying to pick out a bit of an eclectic mix here and not go all in one thematic. So I'll start with WiseTech (ASX: WTC), and that's an interesting one because, on the outside, it doesn't look like they have much of a moat. But the moat is the hundreds of millions of dollars of technology investment they've spent building out CargoWise and as FedEx, Kuehne+Nagel and more and more of these companies give up on their internal platforms and move on to CargoWise, it's creating this network effect, which is pulling other businesses onto it. The thing with WiseTech is they don't have a competitor. So the competitor is these companies choosing to go back and try and do it themselves again, which is almost inconceivable. So, for me, that's a big moat. 

Transurban (ASX: TCL) is another one. No one is going to go and build an Eastern Distributor next to the Eastern Distributor. They have a monopoly. They have a very wide moat. I think that's one we can plainly see. But also the moat for growth is every time the New South Wales, the Queensland government announces a tender for a new toll road, they can bid on more competitive terms because they get this network effect from the linking in of cars from their existing toll roads. So that's a pretty powerful positive that they've got going. 

And then Wesfarmers (ASX: WES), I think is a third one. The moat of Bunnings, which is 70% of group earnings, is that the sites in inner city places close to very highly populated people are incredibly rare. So it's almost, again, impossible to see a second player coming in. We saw Masters try. I think that's created an even bigger moat because everyone now thinks if Woolworths can't do it, who's got a chance and who's got the deep pockets to fund it? So I think there's a big moat there. 

3 businesses with top management teams

Ally Selby: Let's move on to businesses with awesome management teams. And does it have to be a founder-led business?

Ben Clark: I think it's a massive help. The evidence is undeniable. I know you've done a lot of analysis on this with other guests. Founder-led businesses do outperform over the long term, so I think it helps. So, if I'm picking three there, all three effectively are founders. 

I'll start with Reece (ASX: REH), which was started by the Wilson family many decades ago, and Peter Wilson is now managing the business. I think he's done an incredible job, but a very patient job in rolling out MORSCO, which is now being rebranded to Reece in the United States. An anecdote I heard, I think it was on an earnings call, was when he spoke about flying over to Perth and going and staying with John Gillam for five days, who was the CEO of Bunnings and who unfortunately pulled out of the UK and he said, "I went over there just to understand what went wrong, what John would do again." It's that effort that founders will go to try and make sure that the business is still going to stay on for the next generation. So I think they've done an incredible job. 

Goodman Group (ASX: GMGwould be my second one. Greg Goodman has achieved a lot. One thing is investors all make a lot of mistakes, but you learn from your mistakes and that's what makes a better investor down the track. And I think if you look back at the GFC where Macquarie Goodman nearly went under. One lesson I think Greg took out of that, was never to let the balance sheet be put into doubt again. And so we go into this downturn in the REIT sector, Goodman's got 5% gearing, and balance sheet look-through, I think, of 9%. So that's the reason it's held up so well because he's seen what's happened in the past. He's gone through that and he's thinking about the long-term, not trying to spice up returns in the short term. 

And then Macquarie (ASX: MQG). Now Macquarie's an interesting one because strictly, it's not a founder-led business. But when you look at the last two CEOs, they have had incredible personal wealth in Macquarie shares. So Shemara has openly spoken about never having sold a Macquarie share. And Nicholas Moore, I think was reported to have about half a billion dollars in Macquarie shares when he retired.

Macquarie, to me, has been a best-in-class company at passing on the baton to the next leader, with very long stints at the CEO level, and then building out a team below where there are multiple candidates that could take that next job. And the other thing is the remuneration structure at Macquarie, you can't get a bonus, dump your shares and walk away. It doesn't work like that. You have to think about what the long-term outlook for the business is because you're not necessarily able to sell your shares over the long term. So that's a third one.

3 businesses with structural tailwinds (and rock-solid balance sheets)

Ally Selby: You also talked about businesses with structural tailwinds as well as rock-solid balance sheets being really important when assessing businesses over the long and short term. Are there any ASX-listed businesses you want to call out there?

Ben Clark: So let's start at the top again. CSL (ASX: CSL), which is well-loved, but for all the right reasons. There's an undeniable structural tailwind in that sector. They're going to sell a lot more blood and plasma to billions of people in coming years. They've got an incredible R&D pipeline that's looking at new areas. And it's hard to go past the fact that if they can execute well, particularly on Vifor, a few question marks on that at the moment. But if they can get those margins back to 2019 levels, the next decade is looking very good for CSL. 

REA Group (ASX: REA), which I think is a bit of a play on the rising population as well that we're seeing in this country. It's just inevitable to me that there's going to be a lot more dwellings over the next decade than there are today. And if there are more units, houses, townhouses, whatever, there's going to be more transacting of assets every year-on-year. It's not going to be, of course, a linear growth. There'll be cycles. All of these businesses will have cycles through a decade, but if you've got more dwellings, there's going to be more turnover. And then over the long term, we should also see rising house prices in Australia.

And if we see rising house prices, the algorithms that tie what REA charge you to advertise your property are linked to the price that you're hoping to get for it. So that obviously will go off as well. So you've got growth on growth in REA. 

The third one, a bit unusual, is Auckland Airport (ASX: AIA). Aside from the pandemic, one of the greatest structural tailwinds is global travel. As people get wealthier, they tend to travel more. And the Chinese, I think at one stage, only had less than 10% of the population with a passport.

India will be another big nation that starts to travel. AIA has an incredible structural tailwind because if you want to go to New Zealand, you only have one airport to choose to go through, which is Auckland. There are some flights from Sydney to Queenstown, but they own a portion of Queenstown as well. If you want to fly to Australia, you can fly directly into Brisbane, Melbourne, Sydney, Gold Coast, and Perth, but if you want to go to New Zealand, that is the gateway.

And so, I think over the next 10 years, you'll have growth on growth on growth every year of the number of people travelling through the airport. You'll then have the growth of what they're charging you on a ticket price, which is regulated, but it will continue to go up. And then you'll also have higher prices for rent, lounges, car parking, all of the ways that they can flex the money out of the asset. So that's got a big structural tailwind.

A holy grail stock with all three

Ally Selby: Ben, you've talked about a lot of stocks today. We're very grateful for you sharing your ideas. I want to know, is there a stock, a holy grail stock, if you will, that has all those factors that you would back over the next 10 years?

Ben Clark: I actually reckon when I was going through the list, there are quite a few of those stocks that meet all three criteria. But to pick one, maybe a bit out of left field, I go for Brickworks (ASX: BKW)

Let's start with management. Lindsay Partridge has been there for nearly two decades now, and he's done an extraordinary job at growing that business from basically a brick producer to something now that's much more multifaceted. And then you've got Rob Millner as chairman of the company and the largest shareholder - and the Millner family truly are making decisions on generational timeframes. So that's a big tick. 

Structural tailwind. The engine of the earnings business for Brickworks is actually the industrial property trust that they've got with Goodman. And as Sydney and Melbourne and the cities down the East Coast in particular continue to grow, they've got this huge land bank that they will continue to develop to build and own and operate these industrial properties. And as we all shop online and companies need to get closer to population centres, it's really hard to see that the rents from these assets won't continue to go up and that the valuation of the assets won't continue to go up. 

And then you've got the Soul Patts machine feeding a dividend into Brickworks every year. That's more linked to what markets. Soul Patts is becoming almost like an investment house these days. And you've got to think over a 10-year period you get rising asset prices and they're getting into some pretty interesting areas in alternatives and credit and stuff like that. And that's very well managed by Todd Barlow, who's done a superb job. 

So Brickworks, you've got the moat. And the moat in particular with industrials is you can't go and replicate the land bank of what they have. The building products business is going to be generated, is going to be powered by the land bank that they have and where they can mine clay out of, close to consumers and lowest cost producers. And there won't be another player I think coming to that market. So that one ticks all the boxes for me.

Ally Selby: Well, thank you so much for coming on The Pitch today. Ben, really enjoyed this chat. If you enjoyed that too, don't forget to subscribe to Livewire's YouTube channel. We've got so much great content just like this coming every single week.
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Ally Selby
Deputy Managing Editor
Livewire Markets

Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian...

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