How Does Your Portfolio Grow?
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Designing an ever blooming portfolio is not that hard. It’s a lot like growing a flower garden of different plants that bloom at different times for an effect of constant blossom. You need a blend of evergreens, perennials that you plant once and keep coming back year after year, and annuals for a pop of color--but these won’t last forever.
(Full disclosure: I used to like gardening until I lived in Texas and had to deal with snakes, scorpions, and fire ants. But I still like to look at the catalogs in the winter)
All the Pretty Flowers
For your evergreens you’d want some defensive dividend aristocrats like tobacco companies Altria (NYSE: MO) and Philip Morris (NYSE: PM), domestic and international, respectively. Tobacco may be called the noxious weed but those dividends are ’evergreen’. Plant one and ‘done’. Altria is yielding 4.70% and Philip Morris is yielding 3.50%. Philip Morris with a lower yield may be preferable because anti-tobacco sentiment is not as prevalent overseas. A study dated August 16 confirms, that sadly, smoking is on the rise in developing countries.
If you find tobacco distasteful you could pick up a defensive stock like Pfizer (NYSE: PFE) with its yield of 3.70%. It has a P/E of 17.79 and has been pushing up 52 week highs for most of this year. Or The J.M. Smucker Company (SJM) which popped 5.05% after earnings on August 17. You missed the bloom this earnings season but October is right around the corner for this dependable grower with name brands you certainly have in your kitchen. Smucker’s yields 2.70% and has a 20.40 P/E. Four Smucker family members are listed among major insider holders with an aggregate 1,442,456 shares.
Just like designing a garden you need plants of various sizes and as well in a portfolio a good mix of large cap, mid-cap and small cap. Smucker’s fits the bill as a mid-cap and Philip Morris, Altria, or Pfizer can be the large caps.
Another good mid-cap play could be oil refiner and retailer Tesoro Corporation (TSO) now at a 52 week high but only has a P/E of 11.36 CEO Gregory Goss was recently named as best mid cap CEO by Chiefist.com which rates CEO’s on a Business Value Enhancement Metric based on margin expansion, EPS growth, book value per share and return on equity. Energy had underperformed this year but is coming back and Tesoro has gradually climbed up from $10 to almost $40 over the last few years. Institutions hold 95.30% of shares for some nice support. Tesoro also got a bargain basement deal on BP's oil refinery in California and 800 Southwestern retail stations this week.
You also need a cyclical stock or two. You could fill in with a consumer cyclical like Ford Motor Company or Whirlpool but I think Freeport-McMoRan (NYSE: FCX) as a commodity cyclical has been beaten up enough and is very interesting here with its 3.50% yield, a 10.62 P/E and the possibility of a special one-time payout before year end, according to Tobias Levkovich of US Equity strategy at Citigroup. As a play on the housing recovery (the builders have been doing very well this year), Freeport stands to benefit with its copper as well as from good news from China, fingers crossed. Freeport is down $13 from its 52 week high of $48.96 which is coincidentally just shy of analysts’ price target of $49.00. And don’t forget that gold.
Finally you need a small cap to act as your annuals; these can grow fast but aren’t as hardy as the others. A REIT like Resource Capital (NYSE: RSO), may fit the bill. Resource Capital is a small cap REIT specialty finance company investing in commercial real estate that pays a 14% dividend and has a 9.90 P/E. Caution: like most small caps it is thinly traded and the company has only been around for 7 years.
Another choice could be biotech Cambrex Corporation (CBM). Cambrex has tripled over the last 52 weeks but still only has an 18.26 P/E. It is a life sciences developer and manufacturer of pharmaceutical ingredients needed for pharmaceutical and generic drug companies. What ‘s interesting about Cambrex is that it’s like the supplier of shovels to the biotech and drug companies that are mining for the next big blockbuster drug, the gold as it were. Not to mention that CEO Steve Klosk was also listed by Chiefist.com as one of the best small-cap CEOs by the same metrics as listed for Tesoro above.
How to Keep Them Growing
So now you have diversified sectors, defensives and cyclical and small, mid and large caps. What a pretty portfolio! Just keep up with any weeding, as necessary, prune back if a position gets too big and lop off some profits once in a while to show your envious neighbors. Replace positions if they’re not growing well and water with some due diligence.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Motley Fool newsletter services recommend Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
