Today's article begins to assemble specifics towards creating "The Perfect Portfolio," as outlined in an earlier article. Dividing stocks into groups by market capitalization is one thing, but breaking it down further into strategy (value, growth, blend) is where things get a little fuzzy. So some of you may not like that I eliminated the blend strategy altogether and some may not consider a stalwart a growth stock, but that's the way I'm going.
With large cap growth stocks, I want to anchor the asset class with at least one ETF and stuff the rest of the class with stocks I want to own for the next 10 years. These are world-class brands that have always been around and always will be around. My goal is diversification, but more in asset class than sector or industry. I don't like purely mechanical models. I trust my gut as it has served me well over my investing years.
I'm grounding this asset class with a core position in the iShares Russell 1000 Growth Index IWF. The ETF itself contains world-class names like ExxonMobil (XOM), Apple (AAPL) and IBM (IBM), which alone take up 13% of the security.
To add to this, on the tech side, I'm adding Amazon.com (AMZN) and Apple Computer (AAPL). As you can see, I have no problem doubling up on some stocks like Apple. Analysts have 5 year annual growth rates at 28% and 21% respectively.
I like a few consumer stocks here. Coca-Cola (KO), Walt Disney (DIS), McDonald's (MCD), Philip Morris International (PM), Starbucks (SBUX) and Yum! Brands (YUM) are all proven winners. They all survived the recession just fine, producing billions in free cash flow. None of them carry debt risk. All are projected to grow between 10% and 15% annually over the next five years. Starbucks has arguably had its day and I could make a case for going with Green Mountain Coffee Roasters (GMCR), but it feels too volatile for me. In addition, they all pay dividends between 1% and 4%, which I plan to reinvest.
I'm adding three financials, assuming you can call Berkshire Hathaway B Shares (BRK.B) a financial, along with Goldman Sachs (GS) and U.S. Bancorp (USB). Buffett is a no-brainer and while some fear Goldman's best days are behind it, Goldman has ruthlessly laughed all the way to the bank for a very long time. That won't change, even with the Consumer Financial Protection Bureau. U.S. Bank had little exposure to toxic mortgages and is just a really well-managed bank.
As for the rest, I'm betting on Wynn Resorts (WYNN) because if I'm betting on gaming, I'm going with the legend. General Electric (GE) is required, for its impeccable track record and brand name and dividend. I could easily grab every oil stock, but I'll restrict myself to the powerhouse, ExxonMobil (XOM). Finally, I'm adding United Parcel Service (UPS).
The other reason I'm choosing these is that these are stocks I can tuck away in my portfolio and not have to spend a lot of time watching. These are ten-year (or longer) holds. Barring some great disaster befalling some of them, I can sleep at night.
That's the first 16% of "The Perfect Portfolio." Next time I'll add in large cap value.