Today's article assembles further specifics toward 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, and also Mid-Cap Growth Stocks. Today I'll stuff the portfolio with Mid-Cap Value Stocks.
With Mid-Cap Value 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 at least until they reach what I think their intrinsic value may be. On a very, very broad basis, that means a PEG ratio somewhere around 1. At that point, it's possible that they may not have reached my intrinsic value calculation, they may get removed from the portfolio, or they may get switched over the Growth class. 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 Midcap Value Index, a broadly diversified index in which its top ten holdings only account for about 8% of its total assets. One of the interesting holdings of this ETF is CBS Corporation. The ad market has been showing significant improvement over the past year, and a huge amount of CBS' revenue is tied to advertising. The company is only trading at 10x forward earnings vs. a 25% five-year expected annualized growth rate.
To add to this, I'm adding Corrections Corporation of America (CXW). This choice was inspired by Pershing Square hedge fund manager Bill Ackman's purchases of the stock. Although Mr. Ackman has been scaling back on his position, the investment thesis still feels rock solid to me. Along those same lines, I'm adding General Growth Properties (GGP), also liked by Mr. Ackman, with the added benefit that he is holding onto his position despite a nearly 15-fold gain. And since I can't get enough of Mr. Ackman's choices, I'm throwing J.C. Penney (JCP) into the mix. That the company just hired away the genius behind Apple's (AAPL) retail stores bodes well.
Guess? Inc. (GES) has a projected 5-year annualized growth rate of 13.3%, according to analyst estimates, and is trading at 12x this year's estimates. That's a value proposition to me, and when combined with solid free cash flow, and 31% insider holdings, I can see that management's interests are aligned with mine and they are delivering.
I've written about Leucadia National Corporation (LUK) before, and that's a perfect addition to the portfolio. The conglomerate's wide array of diversified holdings and it's experienced management gives me plenty of confidence.
My final addition in the legendary Tupperware Brands Corporation (TUP). This world-class brand name may not seem like a value play, but at 15x this year's estimate, and 5-year projected annualized earnings growth of the same makes it exactly that.
Mid-Cap Value Stocks take up 3% of the Perfect Portfolio.