A longer time horizon offers the newer investors more opportunities to seek capital appreciation through a variety of value stocks. While a portfolio of only growth and value stocks has more risk than a steady dividend growth and income portfolio, the potential for capital appreciation is greater.
Also, some stocks do have a dividend as well, so a balance within this road can be achieved for younger investors who are willing and able to take on more risk.
Stocks To Pave This Road
As with any portfolio that is of a serious nature, the mix of stocks that make up the core portfolio should be carefully selected based on sound fundamentals.
Apple: Price: $614.00/share, Dividend Yield: 1.80%, ESS Rating: Very Bullish
Keep in mind we are not discussing the next super duper product assortment that Apple will be launching. We are focusing in on the fundamentals to consider adding this stock to a core portfolio.
It also is important to note that Apple can be classified as a growth stock as well as a value stock. The P/E is about 11, cash on hand is over $110 billion and new products are coming out all the time. The growth potential is still remarkable.
Now that there is a dividend as well, the stock does offer value to shareholders so in my opinion, a core position in this stock can produce a long term horizon investor plenty of options. Even if we begin with only 10 shares.
Amazon: Price: $225.00/Share, Dividend Yield: N/A, ESS Rating: Bullish
Amazon has focused much of its resources on growing its revenue (top line growth) and is banking on the eventual explosion of the internet for greater consumer shopping needs.
In my view, even with a P/E of 88 the stock has not yet reached it's apex, since only roughly 11% (up 25% from 2010) of all retail shopping is done on the internet right now. Amazon owns an incredible 70% share of the market.
Just imagine for a second that Amazon does absolutely nothing but what it already has done. Simply by virtue of its brand and size, they will almost certainly capture the most sizable chunk of internet retail as that market continues to outpace brick and mortar retail.
Remember as well, without the enormous retail overhead of physical stores and staffing, enormous amounts of cash can be deployed into other markets for Amazon to take a swing at. We see that right now with a potential entry into the smartphone business. It might not work, but what have they got to lose? Not very much, and to me it's a brilliant idea. All one needs to do is look at the success of the Kindle Fire. Amazon learned a lot from that and has made an impact as well.
Without a dividend, what would you classify Amazon as? Growth or value?
To me it is also both even with a very high P/E.
To round out a core portfolio taking this road I would look at the following stocks as well;
- Chevron (CVX) a value and growth stock
With a forward P/E of only 8, and a dividend yield of 3.5%, this great company could be considered undervalued as well as a solid dividend payer, ergo; growth and value.
- CVS Caremark (CVS) a value and growth stock
With a forward P/E of only 12.75, as well as a dividend of 1.50%, we have a value stock with growth potential in the healthcare field as well as retail.
- Denny's (DENN) a value stock
A very low P/E of 12.89, a market cap well below the enterprise value, and last quarter growth of earnings by 42% ( even though they had been struggling) gives this stock a clear opportunity to increase in value, as it continues on the road to profitability.
- Healthcare Realty Trust (HR) a growth stock
Not a high flying value stock but with a 5.0% dividend yield, and a recovering share price, this is a clear example of a growth stock.
- Cisco (CSCO) a growth stock
A very low P/E of 8.72 in the tech sector makes this stock more of a growth stock more than a value stock even though it also has a dividend yield of 2.0%. Cisco also has about $50 billion in cash, which gives it plenty of flexibility to grow externally as well as internally. This is a solid growth stock.
- Intel (INTC) a growth and value stock
A great dividend of 3.20% as well as an expanding business with a very low P/E of 9.80 offers investors both growth and value in this stock and a wonderful company.
- Bed Bath & Beyond (BBBY) a growth stock
A forward P/E of under 12 in a sector that as it recovers, makes this a very strong growth opportunity. They have nearly $2 billion in cash and zero debt,which offers an investor a very clean balance sheet with a well managed company poised for growth.
- Microsoft (MSFT) a value and a growth stock.
Now that Microsoft is making a full court press into the smartphone and tablet market (with it's Surface model) they have crossed back into the growth mode while maintaining a solid 2.90% dividend for its value as a holding. This one could surprise everyone with huge growth.
With Apple and Amazon as the anchors, these other eight companies are rated quite highly by MSN Money as both growth and value stocks. They are neither the ultimate in dividend paying stocks, nor are they the riskiest of speculative stocks. They do, however, offer a flexible combination of both capital appreciation potential and some income flow.
A new investor with a 20 year plus time horizon might find a beginning portfolio made up of these stocks quite appealing. An investor closer to retirement age might want a greater assortment of premium dividend paying stocks.
That being said, it is still my belief that a dividend growth investing strategy even for those with a longer time horizon is the lowest risk/best reward path to take.
The next article will develop a portfolio for the dividend seeking investors for the longer time horizon.
Starting somewhere is always a challenge but if you are inclined to travel this road, the stocks I have mentioned, especially the anchor stocks, is a solid way to begin.