5 Stocks For A Complete Retirement Plan

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 |  Includes: CF, COH, CVX, HLF, IBM
by: Ulrik Lehrskov-Schmidt

Summary

I recommend IBM, COH, HLF, CF and CVX for a retirement plan with a 52% 5-year average ROE.

Stable companies with a proven track record who check all 7 Graham requirements are good retirement bets.

Over time the ROI is going to resemble the ROE of the business underlying the stock - regardless of your purchase price.

Great companies face challenges all the time - and survive stronger than ever.

When buy-and-hold is too much hassle you simply want buy-and-forget.

What stocks would you buy if there were no mutual funds or ETFs, you don't have a life that allows a full time dedication to investing and still want to grow wealth for your retirement?

In other words: when buy-and-hold is too much hassle you simply want buy-and-forget.

I think there is a wide selection of no-nonsense stocks out there that does exactly that - stocks with underlying businesses so sound that you should have no trouble sleeping even if you were forced to buy today and not sell before your day of retirement decades from now.

Five stocks which I would be happy buying-and-forgetting are:

  • IBM (NYSE:IBM)
  • Coach (NYSE:COH)
  • Herbalife (NYSE:HLF)
  • CF Industries Holding (NYSE:CF)
  • Chevron Corporation (NYSE:CVX)

Each of these companies of course deserves in depth analysis, but suffice to say that I'm both aware and unimpressed about the worries that IBM is partly relying on old products while it's introducing new ones, that Coach is losing market share to Michael Kors (NYSE:KORS) in North America, that Herbalife is being severely poked with a stick by the FTC, that fertilizer sales can have bad years too and that Chevron just fell out of favor in a recent Morgan Stanley recommendation.

All these issues would be causes of concern if it wasn't the case that:

  1. All companies are large cap companies that have been around for decades.
  2. All have solid current ratios given their industry and little or no debt.
  3. All have been consistently profitable for years and years.
  4. All pay dividends and have done so for years (avg of 2.7%).
  5. All grow faster in EPS terms than the overall economy for the last decade - and the decade before that.
  6. All are cheap: P/E in the 8-12 range
  7. Price/Book solidly below industry averages and with enough hard value to give a non laughable cent-to-invested-dollar in the arcane case of a full scale liquidation.

These 7 reasons are an adaptation of the 7 rules for the defensive investor as comprised by Benjamin Graham, the father of value investing. They comprise a recipe for buy-and-forget investing in a time without ETFs and mutual funds for people who needed just enough advice to get them to retirement in one piece.

The point is that track record matters. And if you don't overpay for it and make sure that the companies have adequate emergency reserves in place - then track record is by far a better bet than 'hot markets', 'growth stock', 'emerging industries' and what not.

These things can be excellent investments - but it requires daily vigilance.

I'm amazed at all the short sighted commentary on the web concerning these 5 companies. It's not that I expect Wall Street to be faithful - I simply expect it to be rational (okay I actually don't - but wouldn't it be nice?).

Doesn't 'safe' mean 'poor returns'?

Over time the return on a security is going to measure up to the return on equity in the underlying business - no matter what you initially paid for that security. Consider that if your grandmother bought a house in 1960 the wisdom of her investment is going to be determined almost exclusively by what happened to the neighborhood in the next 60 years and almost not at all by what she paid for the house initially.

The lowest 5 year average ROE of the 5 companies mentioned (Chevron) is 18% and the composite is a staggering 52% - and remember that this covers the crisis years of 2009-2013.

Are these the 5 best stocks out there? Almost surely not. But the businesses beneath the stocks are outstanding and will continue to be so for far longer than both you and I need them to.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in IBM, CF, COH, HLF, CVX over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.