12 Stocks to Buy and Forget for 2012
Kirk is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you hold one stock in your portfolio, you carry 100% of the risk of losing all of your money. As you diversify your holdings from one company to two to three, you are gradually reducing your risk of losing everything. We all know this. What most investors don’t know is that a 12 stock portfolio of domestic companies cuts your company specific risk about 90%. There are some pretty strong arguments for owning these dozen stocks in your portfolio in 2012.
There is a lot more to risk management of course, in addition to finding good companies to begin with, one must consider the sectors and market caps of the companies owned in order to avoid the group being correlated too closely, thus offsetting the diversification effect. For global investors, which we all should be, studies have shown that about 30 holdings, a dozen domestic, around eighteen international, is necessary to substantially reduce company specific or unsystematic risk.
For the assertive investor, finding twelve companies for the domestic side of a portfolio, to own and hold awhile is generally a worthwhile strategy for maximizing gains. It is also a good strategy for getting enough time off to do other things.
Here are briefs on twelve domestic stocks I could buy and hold for 2012 while I get better at fishing and golfing (well, at least try to):
- Berkshire Hathaway (NYSE: BRK-B): How can you not own this company? Not only is the track record of Buffett and Munger off the charts, but right now they are using their tremendous financial flexibility to support the stock with a share repurchase, presumably until market volatility falls. The company acts as a diversifier itself as it has accumulated an impressive array of businesses. Included in its portfolio are complicated financial companies like Wells Fargo, Bank of America and US Bancorp , which little guys like me find hard to analyze. So while I think banks will come roaring back at some point, I’ll let Buffett and Munger's crew figure out the details for me.
- General Electric (NYSE: GE): While Berkshire owns a bit of GE, it won’t hurt you to own a bit more. This last company standing from the original DOW Jones Industrial Average has added to its broad base of finance, infrastructure and media holdings by ramping up its leadership in many energy related fields, including water technology for fracking oil and gas, wind and gas turbines, nuclear and solar. It still trades about 70% off of its all-time high, presenting a nice bargain price to go along with a solid dividend.
- Applied Materials (NASDAQ: AMAT): A global leader in the semi-conductor industry, which is likely to rebound in the next couple years. The kicker here is a major stake in solar fabrication, which is likely to continue rapidly growing over time. The solar appears to be free when valuing the company. AMAT is trading at very low price levels and has hit Joel Greenblatt’s Magic Formula list. It pays a nice dividend to boot, a rarity for a tech company.
- Peabody Energy (NYSE: BTU): Yeah, I know, coal, it’s gross. But it is so hard to ignore how much gross money Peabody makes. While coal use will be reduced decades from now, the bottom line is that energy production currently uses a lot of coal and Peabody has it in spades. In my recent trip out to Wyoming I saw first hand the expansion that Peabody is undertaking in the Powder River Basin. The company pays a dividend, which appears to be very safe.
- Merck (NYSE: MRK): Picking a great pharma is tough as many seem pretty good. Merck tickles my fancy as I am familiar with some of their low risk, high potential return partnerships with smaller companies such as Cardiome. Its pipeline is strong and its pending patent expirations are nothing unusual. A strong dividend allows owners to wait for bigger paydays.
- Apache Corporation (NYSE: APA): Apache is a mid-major oil and natural gas exploration company that recently acquired several valuable assets to exploit over the next decade or so. The company itself is a potential take over target if Exxon or other super majors get frisky. If not acquired at some point, Apache has excellent prospects to make strong margins on its book of properties. Apache pays a small dividend, which one could foresee growing.
- Kohl’s (NYSE: KSS): This retailer continues to build its brand by conveniently serving the middle market. With a strong balance sheet, a well thought out product mix and Oprah’s endorsement, this company will continue to thrive. For essentially free, investors are also getting Kohl’s conservative alternative energy program, which is efficient and garners good will. The company pays a dividend near 2%.
- Monsanto (NYSE: MON): For the past couple years Monsanto has struggled. It now appears ready for another multi-year run up. Its seed and genomics business is the strongest business available in the sector. As urban and small farms show good growth supplying local marts, and as corporate farms focus on exports, Monsanto is in a good spot. Seed your portfolio with this dividend payer in the important agriculture industry.
- Dish Network (NASDAQ: DISH): While unsatisfied customers are loud by internet standards, the company is still among the largest companies in cable/satellite. After acquiring several assets on the cheap, including Blockbuster, Dish is poised for another growth run. In addition, Dish holds unused broadband spectrum valued near $10 billion, which it can use to expand its offerings, in partnerships, sell outright or as leverage in a merger with a telecom. It pays special dividends many years which are fairly generous.
The next three picks are small and fall into “let’s look for triple digit returns on small caps” column. Don’t worry too much, I’m risk averse too, each of these carry a lot less risk than rolling dice.
- Sunpower (NASDAQ: SPWR): This isn’t just me showering off the soot from BTU. Sunpower is in cahoots with Total S.A. one of the world’s largest oil companies. Total has increased its position in Sunpower to 66% and it appears only a matter of time before there is a buyout. Sunpower’s business is ramping up and it appears to be one of the solar massacre survivors with a bright future.
- Exact Sciences (NASDAQ: EXAS):How would you like to own the company with the cure for cancer? I would too. This isn’t it though. Exact has a screening test for colorectal cancer, the second leading cancer killer, that is poised to hit the market in 2013. It appears a strong bet to take over much of the FOBT/FIT market worth at least $1.2 billion per year, possibly $4 billion per year if they dominate the market as I expect. At a market cap of about $450 million this could rise exactly a lot.
- General Moly (NYSEMKT: GMO): Molybdenum is a metal needed to make steel. General Moly has two properties located in miner friendly Nevada that are nearing start up dates for production. Once production is commenced, GMO will become one of the largest molybdenum producers in the world. A quarter of the company’s shares were purchased by Chinese company Hanlong in 2010, making this company ripe for further foreign investment.
Alright, there you go, do your diligence, then go do something fun in 2012. Actually, come back in a few days and we'll go for a trip in international waters. Then you can go have fun.
Kirk Spano is the founder and owner of Bluemound Asset Management, LLC a Wisconsin Registered Investment Advisor. Bluemound clients currently hold common stock in Berkshire Hathaway (BRK-B), Applied Materials (AMAT), Cardiome (CRME), Exact Sciences (EXAS), are short General Electric (GE) puts and via various funds hold positions in all companies mentioned. Bluemound and Kirk Spano do not plan any transactions in the next 3 trading days. Opinions subject to change at any time without notice. Follow Kirk Spano on Twitter @GALPInvesting.