Today's article assembles further specifics towards creating The Perfect Portfolio, as outlined in an earlier article. I focused on the first asset classes of large-cap growth stocks and large-cap value stocks. Today I'll stuff the portfolio with mid-cap growth stocks.
With mid-cap growth stocks, I want to anchor the asset class with at least one ETF or mutual fund and turbocharge the rest of the class with stocks I want to own until their growth days are over, which I usually define as falling below 13-15% annualized EPS growth. My goal is diversification, but more in asset class than sector or industry. I don't like purely mechanical models.
I'm grounding this asset class with a core position in the iShares Russell Midcap Growth Index (IWP), a broadly divsified index whose top 10 holdings only account for about 10% of its total assets. Its two largest holdings are Priceline.com (PCLN) and TJX Companies (TJX). By the way, TJX has proven to be a premium retailing name. Despite the recession, the company still turned a nine-figure profit in FY 2008, and grew earnings thereafter, along with producing billions in free cash flow.
To add to this, I'm adding Ashford Hospitality Trust (AHT). Of all the hotel stocks and REITs, Ashford managed its liquidity position brilliantly during the recession. Although it had to suspend its common dividend along with just about everyone else, it's since reinstated it, and never had to touch its preferred payouts. It's just completed a secondary offering to raise cash so it can buy more hotels -- a strategy it's done extremely well with in the past.
Copart, Inc. (CPRT) is another favorite stock of mine, which I'm adding and have written about before. The same goes for Dollar Tree, Inc. (DLTR) , which won the Dollar Store Smackdown Contest I recently held.
You'd be crazy not to be buying Whole Foods Market, Inc. (WFM). It's the juggernaut in the healthy eating sector, and nobody comes close: It's growing at 17.5% annually, outstanding management and brand name, with half a billion in free cash flow each of the past two years. The same goes for Tiffany & Co. (TIF). With its brand name, 13.7% annualized growth, strong balance sheet and strong sales numbers in the recovery, Tiffany is a diamond for any portfolio. It is a bit expensive at today's prices, but not if you plan to hold for quite some time.
Finally, I'm adding Affiliated Managers Group, Inc., (AMG), an idea I'm cribbing from an Eaton Vance mutual fund. It's an asset management firm that includes several names I've respected for a long time, such as Tweedy, Browne and Third Avenue.
Mid-cap growth takes up 4% of The Perfect Portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.