A Recipe for Success
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When you craft a portfolio it takes time and practice, just like learning how to create a great paella, cioppino or jambalaya. Even if you have made something one hundred times it can always be improved.
Back to Basics
Let’s pretend we’re making a jamabalaya of stocks. The important thing is to have layers of flavor as they constantly say on the food channels. But like everything else you have to start with the basics. Our first step is a roux of oil and flour. Let’s pick an oil and a flour stock. I know, you’re way ahead of me. General Mills (NYSE: GIS) is the flour, basic and unsung but a dependable dividend payer for 113 years. The company just raised its dividend over 8% in June and it currently yields 3.30%. I would be very surprised if you didn’t have at least one General Mills product in your kitchen as it owns Pillsbury, Betty Crocker, Green Giant, Old El Paso, Yoplait yogurt, Haagen Dazs, Progresso Soup, Wanchai Ferry and Big G cereals, including Cheerios. Their Yoplait yogurt sales have outperformed with the introduction of Greek style and Go-Gurt. I’ve written before that yogurt is the fastest growing food segment of all due to the immense popularity of Greek style yogurt.
General Mills has a P/E of 16.84. As stated in their annual report their long term growth model comprises compound growth rate in net sales at low single digits, segment operating profit at mid single digits and diluted EPS at high single digit plus dividend to add up to a double digit total shareholder return.
OK, maybe that was as boring as stirring a roux until it turns a nice peanut butter color but some recent acquisitions of theirs are making double digit sales like the Small Planet Foods which makes the Larabar healthy snack bar and the amazing performance of Yoplait yogurt. General Mills may be an octogenarian but it has the tastes and preferences of the kids and younger demographics in its sights.
Next, an oil and I like ConocoPhillips (NYSE: COP) for this important ingredient. Conoco Phillips has a 4.70% yield, almost twice that of competitor ExxonMobil and slightly more than BP and it has the lowest P/E of the three at 6.59. It is down considerably from its 52 week high of $78.29 providing a much better entry point. It is also actively pursuing a divestiture plan and says it will see a $400 million after tax gain from selling some of its Lukoil related assets. Former CEO James Mulva who recently retired after overseeing their spinoff of refiner Phillips 66, still owns over 1 million shares.
Of course then you will need the Cajun trinity of green pepper, celery, and onions so I want a triple threat to flavor this. I choose Disney (NYSE: DIS), as it’s a broadcaster, (ABC, Radio Disney, ESPN, various Disney channels), a content creator, (The Avengers, Brave, Toy Story, Shrek and more too numerous to mention, if you have kids you’ve seen them) and a resort and cruise operator. How much more flavor could you want from one stock? It has a smaller yield at 1.40% but again, if you have kids you know this company will never go out of business. Why? Because it sells the one thing people crave after they’ve satisfied the needs for food and shelter: stories. Maybe you don’t like their stories, hey, that’s your prerogative. But Disney as a company since CEO Bob Iger took over is a much more unified and smoothly running machine and the stock price proves it running from $28.19 to $50.65 in 52 weeks.
Of course, you need to add some chopped homegrown tomatoes and, the homegrown company to add to the pot is Apple (NASDAQ: AAPL). Apple is indeed all–American as apple pie, the success story of our time. And it is ripe as a summer tomato, bursting with good news. It even has a yield now of 1.60% and a P/E of 15.83. With its recent patent victory over Samsung and with Google in its sights (probably) Apple is kicking---- and taking names. The average analyst price target is $730.09 and the company has no debt and $27.65 billion in cash. Whew!
There are always Apple detractors but no one in my family can go without their Apple products. The younger daughter constantly has an iPod attached to her ears, the older one at college is inseparable from her Mac and there’s barely a waking moment I don’t use my iPad. Ssshh, don’t tell anyone but somebody in the family is getting an iPhone 5 for the holidays. Our pediatrician walks around with an iPad in her white coat. They make the best products, hands down. Just like there’s nothing like a homegrown tomato still warm from the sun, there’s no company like Apple.
Finally, you need the shrimp as the star position, the raison d’etre for the dish. Big plump, fresh ones and this is the most difficult choice. What is meaty enough to anchor the whole portfolio? Shrimp adds the ineffable Umami that everyone talks about. And the company needs to be as versatile as shrimp like when Forrest Gump’s army friend, Bubba, reels off the hundred ways to cook shrimp; shrimp etoufee, shrimp gumbo and so on.
With over 55,000 products you could play the Bubba shrimp game naming all those products. And the name is 3M (NYSE: MMM) No, I didn’t choose it because its ticker is mmm, but here is a conglomerate which adds layers of industries all its own. Industrial and Transportation, Health Care, Consumer and Office, Safety Security and Protection, Display and Graphics and Electro and Communications are its six segments of operation. Corporate governance risk is low in all categories, the P/E is 15.11 and the yield is 2.50%. There were other possibilities for the shrimp position like DuPont or Monsanto with the drought this year but 3M has a lower beta at 1.02 and we want this portfolio to simmer nicely rather than boil over with market gyrations.
Just a Little Seasoning
Then you can round out the dish with a little hot sauce, maybe Mercadolibre the Latin American eBay. Add some nice chopped green onions from The Fresh Market which is a smaller competitor to Whole Foods Market and a pinch of a speculative biotech, your choice. These would be very tiny positions. All you need is a dash to perk up the portfolio.
Now let it all cook slowly together and keep an eye on it, stir occasionally by adding to a position or taking profits to taste and you have a work of art with what the Cajuns call a lagniappe (a little something special) in the form of all those dividends. So many flavors, so many profitable companies with low P/E’s and all so healthy for your portfolio. Don’t eat it all at once. It’s even better the next day and the day after that.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend 3M Company and Apple. 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.