If I was to invest only in a company's stock to finance my retirement, it would have to be a good one. Let's make the challenge even harder and say that I can only invest in one company and not sell the stock again or even look at the stock price for another 25 years.

My five requirements

That would certainly qualify as a long-term buy-and-hold approach to investing, so I would want to be as sure as I could be about several things:

  • It is unlikely that the company goes bankrupt and leaves me completely out of the race.
  • The underlying business is more defensive than cyclical, and cash and cash equivalents are likely to flow into the funds over the holding period.
  • Regular dividend payments are available to invest in my investment.
  • The business has the potential to grow and generate increasing profits and cash flows over time.
  • The current rating is fair.

If these five conditions are met, I'm reasonably confident that capital appreciation would work in addition to reinvested dividends as a result of rising stock prices to increase my initial investment over the 25-year holding period.

My choice is pharmaceutical giant AstraZeneca (LSE: AZN). The company bears a good deal of debt, but I think that's fine because it operates in a defensive sector, which means that incoming cash flow tends to be stable and predictable. People rarely give up their medication, even though economic times are tough and money is tight. It takes a strong cash flow to pay interest on loans and to pay out reliable dividends. AstraZeneca's financial performance is reassuring.

Back to growth

Over the past five years, cash flow has provided good support and the company has kept its dividend largely unchanged. That's quite a performance, as profits have come under pressure due to the company's well-publicized challenges. The main problem was that some of the company's best-selling products exceeded patent protection, opening the market to a flood of cheaper generic imitators.

However, AstraZeneca seems to get his mojo back. City analysts following the company expect profits to rise this year and in 2019. The company does not just lean back and give itself up to the competition. Instead, it is working hard on its R & D pipeline to produce new drugs that may become tomorrow's bestsellers.

In July, Pascal Soriot, CEO of AstraZeneca, said "Firmly on the track" to return to product revenue growth in 2018. He added that new drugs developed by the company work "Strong" and have established themselves as "Main driver of product sales."

The medium to long-term outlook is positive, and I'm sure that AstraZeneca will be able to generate substantial investment gains beyond my notional 25-year holding period. Fortunately, the current valuation appears fair with a price-earnings ratio for 2019 of almost 20 and a term dividend yield of 3.8%. There can only be one, and for me it is AstraZeneca.

Kevin Godbold has no position in any of these stocks. The Motley Fool UK has recommended AstraZeneca. The opinions on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a variety of insights makes us better investors.



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