There are many ways investors can set up their portfolio for success. Plus, there are so many strategies, goals and risk factors which come into play to determine what investments would work for specific individuals. There are six main stocks and ideas that I believe would be a great fit for just about any investor and several other companies that are worth taking a look at. This strategy may not give you the ability to have the highest return on investment, but that generally requires much more risk, which is not for everyone. The purpose of this strategy is to still gain a high return by having a quality mixture from different sectors, different risk variation and dividends, that will still give an investor the opportunity to beat many other investors. Plus, it includes two stocks that I believe are a must own, Apple (AAPL
) and China MediaExpress Holdings (OTCPK:CCME
– Apple is quite possibly the best company in the world and may soon have the largest market cap of any company as well. In fact, I expect Apple to be the first company to surpass the $1 trillion
market cap mark within the next several years. There are many reasons that I believe this, but mainly because they are still growing at a high rate and they are currently undervalued, especially based on forward earnings for the full year 2011. Just recently I wrote an article
that mentions the success of AAPL and how a split would help propel the stock further. Among the reasons to own it are the following:
- Has beaten estimates for 31 straight quarters;
- Average year over year revenue growth since 2003 has been about 40.87%;
- 2011 estimated revenue is expect to be about $88.5 billion, which represents growth of about 36% compared to 2010;
- Over $50 billion in cash, cash equivalents, and marketable securities;
- Forward P/E of around 16.5 based on analyst estimates;
- 31% growth on their Macs, which outperforms the overall PC market;
- 62% increase in store visitors for Q4 2010 compared to Q4 2009;
- Retail revenue increase in Q4 2010 of 75% compared to Q4 2009, with it being their best quarter ever in the retail segment;
- iPhone distribution in 89 countries;
- Highest customer satisfaction among manufacturers of smart phones for the fourth consecutive time, according to J.D. Power and Associates;
- iPad is still in its infancy and they have sold about 7.5 million iPads in the last two quarters of 2010;
- 14.1 million iPhones sold in most recent quarter compared to 12.1 million Blackberry’s sold;
- Apple TV;
- Verizon will soon carry the iPhone; and
- Huge market in China for the iPhone and should continue to largely expand
Overall, there are so many reasons to own Apple, mainly because of its dominance, continued growth and is still somehow being very undervalued. Based on expectations, it should no doubt beat estimates. Its growth should also continue due to strong demand worldwide, plus the fact that its revenue growth has only been less than 25% one time since 2003 and that was in 2009 when the worldwide economy was not doing very well, but still managed a year-over-year growth of about 14% that year. All the above information can be found through my article posted as well as their year-end transcript. I am sure I left some things out, but there is no reason to not want to have AAPL as part of an investment portfolio.
A couple of the risks would obviously be competition and the health of Steve Jobs. The latter should only have a short-term effect as this is something they can plan for and have something in place. Apple is not just one person. If this were a smaller company it would be a larger concern of mine but they already have the products, market share, expansion, cash, plans, etc., so there should be continued confidence in the rest of management’s abilities.
PRICE TARGET: $1000 in less than 3 years
- China MediaExpress Holdings may quite possibly be the best China small cap company to own. For the individuals that are not aware of what CCME does
, they provide the television advertising network on inter-city and airport express buses in China. I know it doesn't sound too lucrative but they don't have any competition for their inter-city buses. This is very serious and they are doing one heck of a job growing their business and taking control of their competitive advantage. This article
details why an investor should consider CCME.
Their numbers are amazing and there are also other reasons they should be considered in the tier of companies like BIDU
, which should give them a P/E of at least 15. Here are still more reasons to own CCME:
- Expected 2010 net income of about $100 million, which is a year over year growth of about 150%;
- P/E of less than 6 based on 2010 earnings;
- 2011 net income expected to be over $140 million (guidance should be given during 2010 year end results);
- Quality evaluation from Danduedil67 on I-Hub;
- P/E of less than 5 for full year 2011 with full dilution;
- Starr International, which was given full access to book and SAT filings, purchased $30 million in stock in January 2010 after doing four months of research and validation of the company towards the end of 2009. Then in October 2010 it purchased another 1.5 million shares;
- Global Hunters Securities does extensive due diligence on CCME;
- Newly issued dividend policy: 5% - 10% of net profit;
- $170 million in cash with very little debt;
- Recent insider buying by CFO Jacky Lam and other directors in 2010 – over 125,000 shares which equates to about $1.75 million;
- New shopping platform – SWITOW: another intelligent management decision to enhance their advertising platforms;
- Signed contracts with Apple, Sony (SNE), Toshiba (OTCPK:TOSBF), Adidas (OTCPK:ADDDF), Nike (NKE), Samsung (OTC:SSNLF), Phillips (PHG), Skyworth, Supor and others to feature their most popular products;
- Audited by Deloitte – Top 4 auditor; and
- Backed by the government currently
CCME has a lot going for them and they continue to show that they are investor friendly, which is very important in the China small cap space. With all of the allegations of fraud in the space, CCME has separated themselves by having a clean report card with continued due diligence by not only a top auditor, but top firms such as Starr International and Global Hunters Securities. They are extremely undervalued and once the market catches on, there is no telling how much this stock can go up based on its future results and strong management. What is there not to like? Also, the estimates above include 7 million shares that will be given out to management for surpassing 2010 expectations and 7 million shares for surpassing 2011 expectations set forth in a prior agreement.
There are some risks involved, especially short term due to the volatility of U.S.-listed Chinese stocks and continued fraud allegations. Their contract with the government lasts through 2012. Somehow, Deloitte, Global Hunters Securities and Starr International missed information of them being fraudulent. Expect more share dilution in the future.
Overall, the positives far outweigh the negatives. Once other investors begin to realize that this company should not be lumped together with all of the other China small caps, again, this stock will have a huge upside. To help get through the volatility, the company is going to pay a small dividend.
PRICE TARGET: $50 in 2 years (could be much more)
DIVIDEND: est. 1% to 2% based on current price
3) American Capital Agency Corp. (AGNC)
– A mortgage REIT that invests in agency securities, they enjoy guaranteed interest rates and principal by a U.S. government agency or a U.S. government-sponsored entity. This company pays a very healthy dividend because the stock is extremely undervalued. As long as interest rates stay low, this company should succeed and have had a great formula for success. Here's why:
- 19% dividend currently;
- In my opinion, the securities AGNC carry are safer than mortgage-backed securities as they seem to carry lower rated securities with in the pool;
- A stock offering was just completed;
- For the nine months ending September 2010, net income was about $150 million compared to $77.9 million in the nine months ending September 2009, representing an increase of about 92.5%; and
- According to the chief U.S. economist for Goldman Sachs, its rates are unlikely to rise until 2013.
Mainly, they pay a big dividend and while the rates are low and they are able to take advantage of their current situation, this should be a good hold for the next couple of years. They are undervalued and will continue to pay investors. So even if the stock price does not increase, it is about a 19% return currently without having to do much but pay attention to their income and risks, starting on page 44 of the 2010 3rd quarter 10Q.
PRICE TARGET: $45 in less than two years
DIVIDEND: Currently about 19%
4) World Wrestling Entertainment (WWE)
– It is very easy to have a negative view towards the company as many people see it as a joke, but many also see it as quality entertainment. That's why they continue to get overlooked. They do not have the most upside in the world or even a lot of upside over the next few years, but management believes very strongly in paying its shareholders. That is exactly what they have done. Their growth over the years is pretty stagnant and their growth is only slightly up from the mid
With WWE, I just want to stress the importance of the dividend because I believe it is a safe haven to earn some extra cash and to help diversify. I know this is an old video but I wanted to post Linda McMahon’s interview on "Mad Money" in 2008. Although it is almost three years old, it is a good representation of management’s thoughts on paying dividends.
WWE currently has about $180 million in cash, cash equivalents and short-term investments. Unless they can begin to grow their income and cash at a higher rate, the dividend will be in danger but it looks safe for the next 2-3 years.
The price of the stock may be stagnant for a little while but I would just do a starter position initially and see if there is any downturn and accumulate more. With a 10% plus dividend for several years, it doesn’t hurt to have it as part of a portfolio. They also have a lot more room for expansion and seem to be doing well
Several years from now will tell if this is an even longer term hold, but it is a quality dividend investment for the time being.
PRICE TARGET: $20 in 2 years
DIVIDEND: 10% currently
5) Trading – For any investor I believe that having a percentage in which you can do short-term trades can provide several benefits. Obviously, the more risk you are willing to take, the higher you make it as a percentage of the whole portfolio. For most investors, around 5% can help add value to the overall investment. Several benefits are:
- It helps keep investors interactive with the market and helps prevent an investor from becoming lazy on just long-term holds.
- It helps to force continuous learning and research as trading requires looking at many different aspects of companies regularly which helps an investor to do continuous research.
- It helps to learn the psychology involved in the market by paying close attention to reaction of certain stocks on a variety of news.
- It can help strengthen the overall portfolio by uncovering information on current investment either positive or negative.
- It can help uncover stocks that an investor was initially unaware of by doing more reading and see what is out there.
- It just helps to keep an investor involved and interested.
This portion all depends on risk but also requires a lot of research as well. Some of the risks are that trading in a short period of time can also create an investor to become overly emotional with the investment by continually seeing the volatility and being unsure of the investment. I think a small amount can help an investor learn a lot and give them the possibility for even higher returns. One stock that has done me very well trading has been Visa (V
) and I just recently wrote an article
on its trend over a recent six month span. With trading, it is good not to be too greedy but to ensure selling as the price goes up to a target level.
6) Cash – This is pretty self explanatory. Generally, you do not want to be fully invested because no one can time the markets or stocks perfectly. At least part of a portfolio should be 10% cash or even more. By doing this, it ensures that an investor has funds to buy a current favorite investment on a decent downturn or provides an opportunity to buy a stock that became cheap or came down to a target price. Obviously, if there is a larger downturn, having cash protects an investor from being fully invested in the market.
There are many other stocks that are quality investments as well and obviously risk plays a large factor in regards to an investor’s strategy. A couple of other options would be to add a gold stock and for more risk, a silver stock. MO
could also be a quality investment as they have had steady earnings along with a strong dividend. In the China small cap space, I also like ONP
as they have recently had an investigation to prove their innocence on fraud allegations and other than a few minor details it cleared them up and once the new equipment is up, their forward earnings are real and they are sporting a forward P/E of about 5. CMG
is another long term opportunity as they have an excellent product and excellent company with a lot of room to expand as Chipotle only has 1,000 operations total in the U.S. and Canada and they plan on expanding into China. Obviously, there is much more out there, but regardless of the investment, research is a must.
Good money can definitely be made in the stock market and it has presented us with a big opportunity. To take advantage, again, ensure that intelligence and common sense is used by doing the required work and making adjustments when needed.