While the U.S. economy is recovering at a tepid pace, unemployment remains high, which may present a challenge for today’s workforce entrants. Our country’s central bank, the Federal Reserve, has maintained a dual mandate since it was founded in 1913 to minimize inflation and maximize employment. Policymakers have indicated that interest rates will remain at record lows until the unemployment rate falls beneath 6.5%.
The actions of the Federal Reserve have created a “wealth effect,” benefiting Americans that own stocks and real estate. I recommend that readers consider the purchase of stock for your graduate as an alternative to a plain gift of cash.
Here are three stocks I’d consider if required to buy-and-hold for the next 10 years:
Churchill Downs, Inc. (NASDAQ:CHDN)
Churchill Downs, Inc. (NASDAQ:CHDN) is the owner and operator of the Kentucky Derby, the iconic American horse race which began in Louisville, Kentucky back in 1875. With a current market capitalization of $1.5 billion, the company holds one of the most valuable franchises as a deep-rooted American tradition.
While often identified with the Kentucky Derby, the Churchill Downs, Inc. (NASDAQ:CHDN) organization is diversified across four racetracks, three casinos, and TwinSpires.com, the leading online wagering business in the U.S. The Downs’ footprint extends well beyond Kentucky, with physical operations in California, Florida, Georgia, Illinois, Louisiana, Mississippi, and New York.
The company has employed a “growth through diversification” strategy that strengthens its position as a stock for the long-term. Churchill Downs, Inc. (NASDAQ:CHDN) has added gaming and video poker operations at racetracks in Miami Gardens, FL and New Orleans. Management also made a strategic acquisition with the purchase of online wagering site Youbet.com and United Tote, which develops the industry-wide standard for betting on horse races at more than 150 racetracks worldwide.
Betting at this year’s Kentucky Derby was up 21.3% to a new record, despite the fact that only 10 horses participated in this year’s race compared to last year’s 14. Attendance records also continue to be broken.
Wall Street is optimistic on Churchill Downs, Inc. (NASDAQ:CHDN) for the next 12 months. Analysts at Wells Fargo raised their price target range to $95–$105 from a previous $85–$95 as recently as May 24. With more than a century of fascinating history, it’s likely that the Churchill Downs, Inc. (NASDAQ:CHDN) franchise will continue strongly for another 100 years.
Microsoft Corporation (NASDAQ:MSFT)
Microsoft Corporation (NASDAQ:MSFT) earns its place on my list of stocks for the long-term with good reason. While investors often criticize the company for a perceived failure to innovate, Microsoft Corporation (NASDAQ:MSFT) has been a consistent performer over nearly any time period. The technology giant also pays a 2.7% dividend and has increased the payout every year since 2004.
On a fundamental basis, Microsoft’s Office, Windows Server, and Windows operating system divisions have demonstrated pricing power through all types of economic cycles. Microsoft Corporation (NASDAQ:MSFT) also maintains enviable market share positions in the majority of its business lines, excluding Bing and Windows Phone which account for less than 5% of total revenue.
I’ve written positively on Microsoft before, notably my piece Why Microsoft is the Best Investment in Cloud Computing. The computing world’s transition to the cloud is arguably the most noteworthy change in technology since the invention of the Internet, and Microsoft is uniquely poised to capitalize on the trend.
Despite its market capitalization of nearly $300 billion, Microsoft Corporation (NASDAQ:MSFT) still has room for tremendous growth worldwide including emerging markets such as China. The company also reserves more than $70 billion in cash on its balance sheet and boasts a triple-A credit rating from S&P, a rating higher than the U.S. government itself.
Unlike Churchill Downs above, Microsoft Corporation (NASDAQ:MSFT) administers a direct stock purchase plan through its transfer agent. A minimum initial purchase of $250.00 is required.
The Walt Disney Company (NYSE:DIS)
Readers most likely associate The Walt Disney Company (NYSE:DIS) with its family theme parks, but the company offers a larger and broader value proposition for long-term investors.
The Walt Disney Company (NYSE:DIS) is diversified across its lucrative ESPN television franchise, parks & resorts, Disney Channel and ABC Broadcasting, in addition to a growing films business with the recent acquisition of Lucasfilms. All in all, The Walt Disney Company (NYSE:DIS) has become a media and entertainment powerhouse that is stifling the competition.
ESPN dominates sports television within the United States and has no significant competition. ESPN is the only home for 17 of the NFL’s Monday Night Football games through 2021. Most recently, ESPN announced on May 16 it acquired the rights to tennis’ US Open beginning in 2015. Advertisers are well aware of the sports network’s dominance, which helps it raise its bargaining power.
Shares of The Walt Disney Company (NYSE:DIS) have significantly outperformed the S&P 500 over any time, including 1-year, 5-year, and 10-year periods. The Walt Disney Company also offers a direct investment plan, which requires a $250.00 minimum initial purchase. Subsequent purchases can be made with $50.00 contributions.
Foolish takeaway
A gift of stock for a recent high school or college graduate will be remembered for years, much longer than an incidental purchase or gift of money. In my view, the stocks above are well-positioned for the long-term and also well-suited for estate planning or investment in a college fund.
Readers who plan to purchase a small amount of stock should consider the following caveat. The high commission associated with purchasing a single share of stock through vendors such as OneShare often defeats the fundamental purpose for investing: creating lasting value and the potential for price appreciation. A $39.00 certificate fee on the purchase of Churchill Downs common stock increases the cost basis by nearly 50%, making the OneShare gift hard to justify.
The article Stock Gift Ideas for Today’s Graduates originally appeared on Fool.com and is written by John Macris.
John Macris has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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