Remember, investing in stocks comes with inherent risk. If you don’t like taking on too much risk, then long term stocks are your best bet.
These companies typically boast stable financials and deliver consistent returns, acting as the backbone of a healthy portfolio.
At Equitymaster, we always favour long-term investing. We strongly believe that long-term investing in fundamentally strong stocks can potentially maximise returns while keeping risk under control.
The stock market rewards those who successfully apply the rules of long-term investing. It also allows an investor to sleep peacefully at night knowing they don’t have to constantly check the stock price.
In this editorial, we cover three fundamentally strong stocks with low or zero debt, strong cash generation, healthy return ratios (ROE/ROCE) and strong growth plans.
Read on…
#1 HDFC Bank
The bank relies on a model of a wide franchise and a low-cost deposit base. This ensures good pricing power and sustainability of above-average NIMs (net interest margins).
As a result, the bank has always reported consistently good earnings. This has, in turn, led to high return ratios compared to its peers. It’s also extremely conservative with its margins and provisioning policies.
Therefore, it comes as no surprise that HDFC Bank’s net NPAs have never crossed 0.5% of its loans.
HDFC Bank has been investing in various startups to fill gaps and gain expertise in many niche services. This will help the bank stay ahead of the curve in the fintech race. It’s also implementing continuous digital initiatives to enhance customer relations.
While the short term looks stable for the bank, the long term looks very positive.
In the latest quarter, Q3 FY26, the bank’s net profit increased 11.5% year on year (YoY) of ₹18,650 crore.
Net interest income (NII) increased 6.4% to ₹32,620 crore. The net interest margin (NIM) was 3.35%. The gross NPA ratio improved to 1.24% from 1.42% in the same period last year.
#2 Larsen & Toubro
Larsen & Toubro (L&T) is an Indian company founded by two Danish refugees – Henning Holck-Larsen and Soren Kristian Toubro. If you talk engineering and infra stocks in India, L&T is the first name which comes to mind.
It’s one of the top 5 construction companies in India. The company is also engaged in defence manufacturing, IT, and financial services.
L&T’s financial statements make for pleasant reading. Sales and profits have seen a steady increase. The company recovered quickly from the pandemic and is now setting growth records.
The company’s fundamentals are strong. It has a moderate debt-equity ratio and a steadily growing return on equity. Its cash flows are strong.
Big orders and many sectoral tailwinds have ensured L&T’s long-term prospects are positive.
In Q3 FY26, L&T’s net profit decreased by about 4% YoY to ₹3,215 crore.
Revenue from operations increased 10% ₹71,450 crore.
The decline in profits compared to the growth in revenue was due to the impact of the implementation of the new labour code to the tune of ₹1,340 crore.
On a segmental basis, revenue from IT services was up 12% to ₹13,680 crore, revenue from infrastructure was up 4.9% to ₹34,000 crore, and revenue from energy projects was up 15% 12,730 crore.
#3 Sun Pharma
Sun Pharmaceutical Industries is India’s largest drugmaker by market value.
It’s engaged in manufacturing, developing, and marketing a wide range of branded and generic formulations and active pharmaceutical ingredients (API). The company has a wide product portfolio, including generics, branded generics, and speciality products.
It offers medicines in all forms of dosage, including injectables, sprays, ointments, tablets, capsules, and liquids across various therapeutic areas such as cardiology, neuropsychiatry, gastroenterology, dermatology, ophthalmology, and onco-dermatology.
Sun Pharma has 43 manufacturing facilities across India, America, Asia, Africa, Australia, and Europe.
It also has 6 state-of-the-art research and development (R&D) labs in India, Israel, Canada, and the US, focused on generics, finished dosage development, biological support, and new drug development.
In Q3 FY26, Sun Pharma’s net profit jumped 16% YoY to ₹3,370 crore.
Revenue increased 13.5% YoY to 15,520 crore.
At the operating level, the company’s earnings before interest, tax, depreciation and amortisation (Ebitda) increased 23.4% to ₹4285 crore. All the reported numbers were higher than expectations on Dalal Street.
Conclusion
We often hear stories of how investing in stocks delivered unbelievably high returns. Investors are fascinated by the multibagger returns that fundamentally strong stocks keep on delivering.
But the most important aspect of investing is often ignored, i.e. the time horizon. History is proof that some of the largest gains have come from investing in long-term stocks.
The key to finding the best long-term stocks is to look at all the aspects of the company. You need to look at the growth opportunities for both revenues and profits, quality of the management, financial performance, track record of dividends, and much more.
Consider all these points holistically. The best stocks for the long term are the ones that have a tick mark against all of them.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
