When considering the stocks to buy for the long term, I keep two criteria in mind. One, that they should be high quality stocks. Since a number of FTSE 100 stocks fall into this category, I restrict my search to these index constituents. Next, I consider sectors that are likely to grow the most over time. The best stocks for me to buy are those that meet both criteria.
Online sales can grow fast
For instance, one segment that I think holds a lot of promise is online sales. I had talked about its disruptive effect on companies across sectors even before the pandemic. But after Covid-19 struck, this became even more obvious as e-commerce accelerated as we were forced to stay indoors over the past year.
To assess which shares to buy from among the online sales ecosystem, the segment can be further divided into three parts. The first is online sales companies themselves, the next is packaging providers, and the third is warehousing and delivery companies. There can even be overlaps among them. Here are three picks from each of the categories.
#1. Ocado: FTSE 100 online grocer
As far as online sales are concerned, companies from high street retailers to supermarkets have seen a sharp uptick in online sales growth last year. But the stock that I like best is the online grocer Ocado. The reason it stands out for me is that unlike other retailers it is only an online play. Its share price has seen a sharp correction this year, after seeing quite the run-up during the pandemic. But its sales are still strong. And I reckon it is only a matter of time before it becomes profitable too. I have bought it for the long haul.
#2. Smurfit Kappa: strong growth and risk management
There are plenty of choices among packaging providers too. Among these I like Smurfit Kappa, whose share price was increasing even before the pandemic. And in the last one year it has increased by over 50%. Its recent results are strong and it has managed its key risk, which is inflation, by increasing prices. We will know how this plays out the next time it releases its update. But clearly, there is some indication that it has enough pricing power to pass on cost increases to end consumers.
#3. Segro: focused on warehousing
Finally, among logistics solutions providers, I like real estate investment trust Segro. This is because it specialises in warehouses, which are key to successful online sales solutions. Its share price trend was moving upwards even before the pandemic, and its increase has only accelerated since. In the past five years, its share price has almost tripled.
My takeaway
The one downside to these stocks is that they may have run up a lot already. As a result they may be in for correction, as we have seen in the case of Ocado. But over the next 10 years or so, I think they will still be winners. Over time, I intend to keep adding more such stocks to my portfolio.
