5 Stocks for the Next 3 Decades

Includes: MDT, PEG, PEP, PG, TJX
by: MyPlanIQ

Life moves quickly. Already this year we have seen uprisings, natural and man made disasters. Summer approaches, tax season has gone as has the Royal Wedding and the death of Osama bin Laden currently occupies the headlines. It is all too easy to let time slip by when there are steps to take to strengthen retirement and other long term investment portfolios.

We continue to examine different portfolios to see what we can learn and use to further our investment portfolios. Matt Koppenheffer of the Motley Fool proposed five stocks for the next decade.

His view was that while Wall Street likes to focus on one-year price targets. He doesn't have much use for that. He goes on to say: "In part, that's just because I'm lazy. When I invest in a company, I like to get to know it, and I sink a good amount of time reading SEC filings, examining the financials, and figuring out what makes the business tick. I don't relish the idea of starting this process from scratch at the beginning of every year." (more)

His choices:


Products / Services

Dividend Yield

Price-to-Earnings Ratio

Procter & Gamble (NYSE:PG) Gillette, Tide, Crest, Old Spice, Pampers, and many more 3.3% 17.2
PepsiCo (NYSE:PEP) Pepsi, Tropicana, Frito-Lay, Gatorade, and many more 2.9% 17.2
Medtronic (NYSE:MDT) Wide variety of medical devices 2.2% 13.6
Public Service Enterprise Group (NYSE:PEG) Diversified utility 4.4% 10.1
TJX (NYSE:TJX) T.J. Maxx, Marshalls, HomeGoods 1.5% 15.9

Source: Capital IQ, a Standard & Poor's company.

We entered these funds into our system and then compared it with a balanced portfolio of Dividend producing ETFs.

Asset Fund in this portfolio Original Fund Description
REAL ESTATE (BATS:ICF) iShares Cohen & Steers Realty Majors iShares Cohen & Steers Realty Majors
FIXED INCOME (NYSEARCA:TIP) iShares Barclays TIPS Bond iShares Barclays TIPS Bond
Emerging Market (NYSEARCA:VWO) Vanguard Emerging Markets Stock ETF Vanguard Emerging Markets Stock ETF
US EQUITY (NYSEARCA:DVY) iShares Dow Jones Select Dividend Index iShares Dow Jones Select Dividend Index
US EQUITY (NYSEARCA:VIG) Vanguard Dividend Appreciation ETF Vanguard Dividend Appreciation ETF
INTERNATIONAL EQUITY (BATS:IDV) iShares Dow Jones Intl Select Div Idx iShares Dow Jones Intl Select Div Idx
High Yield Bond (NYSEARCA:HYG) iShares iBoxx $ High Yield Corporate Bd iShares iBoxx $ High Yield Corporate Bd
INTERNATIONAL BONDS (NYSEARCA:EMB) iShares JPMorgan USD Emerg Markets Bond iShares JPMorgan USD Emerg Markets Bond

Portfolio Performance Comparison
Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
P 5 Stocks for the Next Three Decades 10% 61% 5% 19% 8% 32%
Retirement Income ETFs Strategic Asset Allocation Moderate 16% 103% 3% 15% 5% 23%
Retirement Income ETFs Tactical Asset Allocation Moderate 9% 48% 9% 77% 10% 67%
Full Comparison
Three Month Chart - Click to enlargeOne Year ChartThree Year ChartFive Year Chart

This is a solid portfolio of stocks that have performed well over the past five years. Given that they don't have the benefit of broader diversification and it is a very lazy portfolio in the sense that nothing is done -- not even reblancing, it performs well against the more diversified ETF portfolio. The tactical asset allocation strategy wins by virtue of avoiding the catastrophic losses we say towards the end of the last decade but this is certainly worth considering.

There is higher volatility that could be hard to live with unless your horizons are far enough out to allow the recovery to kick in.

It would be interesting to see the impact of adding other asset types such as commodities and real estate trusts to provide more diversification.

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.