Behind the search for strong dividend-bearing stocks is the desire to build an investment portfolio that will provide or assist in providing for college and retirement. The diversified ETF portfolio that we use as a benchmark is a stable and reliable path for this. Brian Stoffel of the Motley Fool kicks over a can of worms when he points out that most people are unprepared for these eventualities and are behind the curve in saving and investing for retirement or college.
His solution is to search for companies that have long-term stellar growth potential that can emulate the likes of Apple (AAPL). To be honest, I have a number of concerns about this but I thought it would be worth looking at the logic and evaluating the results.
His selections are:
Despite Apple (AAPL) having an unbelievable run up in value, Brian believes (along with many others) that this stock has a long way to run. He argues that this is not the time to sell Apple and use the money for other stock purchases.
- I have no inside information but I am worried that the iPad will eventually go the way of the iPhone: Although remaining a major player, it will be copied and bettered by the rest of the industry and there isn't a long-term advantage.
Don't bet against baby-boomers wanting to stay active, and that makes MAKO Surgical (MAKO) a long-term winner. The company's RIO surgical system allows doctors to perform minimally invasive procedures on knees and hips.
- Yes, boomers are retiring and they will want to remain active. It could be that MAKO is positioned ideally for this but if the company has yet to make a profit, I wonder about its operations and how it will scale if there are competitive price pressures.
Don't bet against natural gas and Westport Innovations (WPRT). Westport, a company designing automobile engines that can run on natural gas has seen its shares rise over 200% in the past two years. Like MAKO, the company has yet to make a profit.
- I am not enough of an expert to know whether the logistics of setting up natural gas distribution is in place and whether it will be overtaken by renewable energy in the form of electricity or hydrogen.
Chinese search leader Baidu (BIDU). Though the company's shares have surged over 170% in the past two years- and are trading for 47 times earnings- the company still has lots of room to grow.
- Of all of the selections, this is the one in which I have most confidence. BIDU have already shown it can deliver and I think that there is a barrier to entry for other search engines as the recent hassle between China and Google has shown. I think this might have legs, but understanding the Chinese market is not something in which I can claim any expertise.
This is nothing if not provocative and stirs the mental pot, and so is worth measuring against our dividend bearing ETF portfolio:
Asset | Fund in this portfolio |
|---|---|
REAL ESTATE | (ICF) iShares Cohen & Steers Realty Majors |
CASH | CASH |
FIXED INCOME | (TIP) iShares Barclays TIPS Bond |
Emerging Market | (VWO) Vanguard Emerging Markets Stock ETF |
US EQUITY | (DVY) iShares Dow Jones Select Dividend Index |
US EQUITY | (VIG) Vanguard Dividend Appreciation ETF |
INTERNATIONAL EQUITY | (IDV) iShares Dow Jones Intl Select Div Idx |
High Yield Bond | (HYG) iShares iBoxx $ High Yield Corporate Bd |
INTERNATIONAL BONDS | (EMB) iShares JPMorgan USD Emerg Markets Bond |
4 Contrarian Long Term Growth Stocks -- Total of $10K invested equally in each stock
Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
Portfolio/Fund Name | YTD | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|---|
Retirement Income ETFs Strategic Asset Allocation Moderate | 4% | 2% | 16% | 16% | 112% | 2% | 9% |
Retirement Income ETFs Tactical Asset Allocation Moderate | -0% | 0% | 1% | 9% | 72% | 7% | 55% |
4 Contrarian Long Term Growth Stocks | 35% | 64% | 152% | 88% | 248% |
Well, we can see that the historical returns of the four stocks have been stellar. This is not a surprise as Apple and BIDU have been in the headlines for some time. The real question is "how long will this continue?"
Fund in this portfolio | Percentage |
|---|---|
AAPL (Apple Inc) | 19.89% |
MAKO (MAKO Surgical Corp.) | 30.84% |
BIDU | 28.02% |
WPRT (Westport Innovations) | 21.24% |
You can see that Apple doesn't dominate the overall returns and that can't be something that happens very often. So all of the stocks are performing.
Five Year Chart
I have removed everything except the five year chart so that we can get a graphical look at how the stock selection has performed.
I am concerned that this selection is a case of chasing returns. I know about Apple and I know about BIDU, I don't know much about the other two and I have some concerns for their long-term viability.
I think it might be worth doing more digging on MAKO and Westport to come to your own conclusion, but somebody believes in them. It might be worth putting some of your investments into these high flyers to provide some upside growth. I am not ready to commit, but I am going to pay attention to this selection and think about whether this is a path I would like to pursue.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
