1. 21st Century Fox
We start with Don Yacktman, who buys and holds ... and holds. His Yacktman Fund (yackx) has averaged 11.3% annual returns over the past decade, beating the S&P 500 by 3.5 percentage points a year. News Corp. (nws) is a top holding (along with PepsiCo (pep) and Procter & Gamble (pg)). But what he really likes today is the company that will be called 21st Century Fox -- comprising News Corp.'s TV businesses, such as Fox Sports and Fox News, and its movie studio -- after it is split from the company's newspapers (which will retain the News name) in late June. Yacktman expects 21st Century Fox's revenue to rise as it charges cable providers more for its channels: "The model is moving toward more fee-driven, as opposed to advertising-driven, revenues." --Scott Cendrowski
2. O'Reilly Automotive
Americans are driving their cars for longer and longer. That means they have ever more need for auto parts. For Brian Macauley, manager of the Hennessy Focus Fund (hfcsx), which has averaged 12.9% returns for a decade by holding big positions in a small number of stocks, that's a key part of the appeal of O'Reilly Automotive ", one of his top holdings. The company sells a wide array of auto supplies and accessories. Unlike rivals such as Napa Auto Parts and AutoZone (azo), O'Reilly, which has 4,000 stores nationwide, is equally adept at selling to both consumers and garages. O'Reilly's gross margins (now above 50%) and operating margins have been climbing for years, and Macauley says the company's superior growth and execution justify its above-category price/earnings ratio of 17. He anticipates 5% to 6% store growth over the next five to eight years. Much of this will be organic, but he says the company's executives have yet another skill: making smart acquisitions without overpaying. --Katie Benner
3. Pool Corp.
Pool (pool) isn't overly dependent on an expanding economy. The company makes 75% of its revenues on swimming-pool maintenance and repair. "Pool owners will always treat their water with chemicals and need repairs," says Sandy Villere of the Villere Balanced Fund (villx), which has delivered 10.5% average yearly returns over the past 10 years. "It's an expense that people pay, much like the cable or electric bill." That helped the forthrightly named company avoid devastation in the housing meltdown. Pool dominates its industry: With nearly $2 billion in revenues in 2012, it is as large as its top 53 competitors combined. That gives it pricing power. A nascent housing-market recovery will give the company an extra boost as more pools are built. The stock trades at a premium to the S&P -- a forward P/E of 21 -- but Villere thinks the company's prospects justify the price. Management projects 20% earnings growth over the next five years and is raising the dividend, which currently yields 1.4%. --K.B.
To say Rob McIver is choosy would be an understatement. He invests only in companies that have had a minimum 15% return on equity every year for at least 10 years, an approach that has helped his Jensen Quality Growth Fund (jensx) average 6.9% returns over the past decade. One model of consistency: 3M (mmm). The company makes some 55,000 products, sold in 200 countries, everything from Post-it notes and Scotch tape for consumers to specialty films and coatings for the aerospace industry. Such products and 3M's culture of constant innovation have given it major pricing power, says McIver. About 6% of the company's revenue is spent on R&D. McIver notes that emerging markets are helping drive earnings growth, with 65% of sales coming from outside the U.S. How's this for constancy: 3M has paid an annual dividend for 96 straight years and has raised it every year for the past 55, through crises, recessions, and depressions. The current yield: 2.3%. --K.B.
Chocolate powerhouse Hershey (hsy) has the sort of leading position, strong cash flow, and dependable management that Susan Kempler seeks. Her TIAA-CREF Growth and Income Fund (tiirx) has returned an annualized 9.9% over the past 10 years, and Hershey is a big holding. With virtually no generic competition in the candy business, Hershey is able to maintain high margins and pricing power. Little surprise, then, that Hershey generates about $1 billion in free cash flow a year, which it uses to increase its dividend, buy back stock, and fund expansion. There's plenty of room -- particularly in China and Mexico -- for the company, with $7 billion in sales, to grow within the $190 billion global confectionary market, says Kempler. She adds that Hershey has been smart about entering new markets, introducing only a few products while working to make candy an everyday snack, just as it is in the U.S. Kempler expects Hershey to maintain low- to mid-teen earnings growth for the next three to five years. --K.B.