It's not often that Forbes' Baldwin weighs in with a selection of stocks. I have followed William Baldwin for some time and this post was, maybe, tongue in cheek but I thought I would see what returns his selection has delivered. His thesis is that you should invest in companies that put you over abarrel and you may whine about the price but you don't do anything about it. The point is that these companies can work on strong margins and therefore should do well. That's an interesting thesis so let's look at the companies he comes up with.
- Lexmark (LXK) as the battle for inflated ink prices goes on.
- UnitedHealth Group (UNH) as a health care provider that benefits from a confusing healthcare picture.
- Quest Diagnostics (DGX) will have increasing revenue from aging boomers.
- Amgen (AMGN) proxy for the drugs industry that will benefit from an aging population.
- Time Warner Cable (TWC), should do well as we continue to pay for content.
- AT&T (T) has a very strong position in both cell phones and many fixed lines for DSL.
- Valero Energy (VLO), is well-positioned as oil fluctuations are rapidly passed on to the public.
- Intuit (INTU), publisher of tax software, benefits from the complexity of the tax system.
No thought has been paid to balance and there is overweight on the healthcare sector but other than that, it has a reasonable spread.
In November 2011, I reported on four stocks that also had pricing power because of their brand:
- Sanofi-Aventis (SNY) is a drug company that has the benefit of patent protection and has recently made acquisitions to extend its patent portfolio.
- LVMH (OTC:LVMUY) sells to the uberwealthy who are more recession-proof and its recent price rises have not put off its customers.
- Caterpillar (CAT) has the benefit of a strong sales and support network to minimize downtime which is a major cost concern, and the fact that many heavy industries are benefiting from commodity price rises.
- Disney (DIS) has its struggles but a strong brand and with ESPN firing on all cylinders in sport, it has a very handy network of contributors.
I am going to build a selection of each of the sets and compare them with our reference ETF portfolio.
|Asset||Fund in this portfolio|
|REAL ESTATE||(ICF) iShares Cohen & Steers Realty Majors|
|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|
- Make Money On Companies That Gouge You -- Total of $10K invested equally in each stock
- 4 Stocks With Pricing Power -- 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||1 Week|
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||1.6%||3.0%||7.7%||93.5%||13.7%||114.9%||7.0%||58.1%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||3.0%||5.8%||2.0%||16.7%||12.5%||97.3%||1.9%||8.5%|
|Make Money On Companies That Gouge You||3.7%||13.9%||10.9%||57.8%||20.3%||110.4%||1.3%||4.0%|
|4 Stocks With Pricing Power||4.8%||10.8%||-4.6%||-6.4%|
*: NOT annualized
**YTD: Year to Date
The returns on the stocks that gouge you are decent for the past three years. We note that with a small number of stocks, you see increased volatility and hence increased risk. As the second portfolio just falls short of three years of reporting, we will drop down and look at the graphs.
Three Month Chart
One Year Chart
Three Year Chart
Five Year Chart
The stocks with pricing power are just too volatile. There are some big drops which offset the climbs. I wouldn't feel comfortable holding this selection without others to hedge some of the drops. The gouging portfolio is much less volatile and behaves decently. It has been doing well since its low in 2009. This approach may be worth further analysis to perhaps find others and build a better selection of companies that have strong market positions.
Additional disclosure: 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.