Realistic Long-Term Growth Portfolio

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Includes: ESV, GILD, KORS, MATW, MON, SDRL
by: The Value Portfolio

Summary

Only the minority of people in their late twenties have $100,000 to invest.

The goal of this article is to take $10,000 and invest it in a hypothetical growth portfolio.

Monsanto, a key player in the agricultural world, has been included to help balance out the portfolio.

Introduction

Recently, I wrote an article on a young investor growth portfolio. While the article received a good reception, I received two major pieces of feedback. The first was to create the growth portfolio designed more realistically for someone in their late twenties with $10,000 to invest vs. $100,000. The second was to add an agriculture stock to the growth portfolio.

The goal of this article is to take a hypothetical person in their late twenties with $10,000 to invest in a growth portfolio. I will construct a growth portfolio based off of currently undervalued stocks, and then release regular updates.

Rules

The rules for this portfolio will be similar to the rules for the last one.

  • No new money may be added to the portfolio.
  • No stock may make up more than 25% of the portfolio.

And a new one…

  • The portfolio must contain one agricultural stock.

The first rule is not a limitation most people face - the main goal of it is to simply ease the management of the portfolio over the long run and tracking its success.

The second rule is there to limit the portfolio's risk. While investing in a single stock that brings high returns can help the portfolio do much better, it can also noticeably increase the risk of the portfolio.

The third rule is there to help bring balance to the portfolio based on advice received. Investing in a sector that will always be a major part of the world economy helps reduce the risk in the portfolio.

Portfolio

Positions were established based on closing prices on March 12, 2015.

Stock

Shares

Purchase Price

Percent of Portfolio

Monsanto Company (NYSE: MON)

13

$118.44

15.40%

Gilead Sciences (NASDAQ:GILD)

20

$99.93

19.99%

Ensco (NYSE: ESV)

100

$21.90

21.90%

Michael Kors (NYSE: KORS)

30

$65.42

19.63%

Matthews International (NASDAQ:MATW)

46

$48.73

22.42%

Out of the $10,000, 99.34% of it is invested into these five stocks. All of these stocks but KORS pay a dividend, which should provide you with some nice dividend income. Bank of America was removed for Monsanto, a company that makes genetically engineered seeds.

Monsanto

Monsanto is a company that focuses on creating genetically engineered seeds to help feed the world's population. Monsanto is the world's largest seed company and on top of helping other seed companies, focuses on developing seeds to help farmers control insects and weeds, two of the threats faced by crops. More so, the company also controls the Roundup brand of herbicides, that are sold both residentially and industrially.

Over time, farmers have been planting more and more genetically engineered seeds because they produce the same food crop while also having the advantages of being resistant to major dangers. The company charges a price for its product that allows farmers to make a profit. The company has stated in the past they expect to continue their rapid pace of growth, especially and more and more farmers in developing countries turn to such seeds for the advantage that they provide. The huge market Monsanto operates in, along with the rapid growth of that market, mean Monsanto should be able to grow well in the future.

Gilead Sciences

Gilead Sciences is a pharmaceutical giant that has rapidly growth over the last few years. Most of its success has stemmed from its dominance in the Hepatitis C market, where its drugs go for $100,000/prescription despite their low cost of manufacturing.

Yet, despite their enormous price, these drugs have a bright future filled with high demand. Gilead's drugs revolutionized Hepatitis C treatment after it was revealed most patients are cured after a 12-week course. More so, the Hepatitis C market of the future is huge - according to Bloomberg Intelligence, an estimated 1.2 million people in the US alone (a country with high health standards and only 5% of the world's population) could be left untreated with Hepatitis C after 2016. This enormous market should allow Gilead Sciences to maintain a high growth rate well into the future.

Ensco

If you are interested in more information, please read this Seeking Alpha article I wrote on Ensco.

Ensco, an offshore drilling company that drills both oil and gas wells has been hit hard by the oil crash. Since its 52-week high of $55.89/share, Ensco's shares have dropped by more than 60%.

Yet, despite these challenges, Ensco's management has been working hard to put it in the best place for recovery. Ensco has been aggressively cold-stacking rigs to cut down their cost to $1 million while at the same time helping to alleviate the over-supply issue.

While the current oil downturn is forecast to have a longer recovery time than previous oil crashes, such as the one of 2008, currently oil prices are not sustainable. According to a chart presented at Seadrill's (NYSE: SDRL) investment presentation, only 80% of oil produced today is sustainable. With such a relatively small over-supply having caused the current oil crash, the shortage caused by current prices should help lead to a long term recovery.

Michael Kors

If you are interested in more information, please read this Seeking Alpha article I wrote on Michael Kors.

Michael Kors shareholders, like those of Ensco, had a disappointing 2014. While not as significant as those faced by Ensco shareholders, Michael Kors shareholders are still looking at a loss of 35% from 52-week highs.

Currently though, Michael Kors is undervalued against its peers. Its current P/E of 15.66 compares to an average of 18.24 among its peers (not counting Kate Spades which has a P/E of 55.37).

More so despite its low P/E, Michael Kors has shown great ability to grow. Nasdaq forecasts its earnings per share to rise from $4.30 for the current fiscal year to $5.24 for the fiscal year ending in March 2017, a gain of 30%. With Michael Kors newly launched online website showing a 73% sales growth in Q3 2015, Michael Kors, even if it maintains its low P/E, should provide exciting returns to the growth investor.

Matthews International

The last company I want to talk about is Matthews International, a company that makes products for memorials, graphics imaging, and also provides merchandising and printing services to retailers.

During 2014, Matthew's revenues rose 16%, while its EPS advanced an astounding 20%, great growth for any company. More so, Matthews also purchased Schawk recently, a brand development company. This purchase should start producing immediate sales and earnings growth.

More so, despite its low dividend yield of 1.1%, the company has managed to grow its dividends every year since its inception in 2003, while only paying out 19% of EPS meaning its dividends have room to grow. Matthews' rapid growth along with its history of dividend growth should combine to result in nice growth for the future.

Conclusion

While some of the material in this article was the same as in the last article, the main goal of this article was to incorporate advice from the last article. While the last article used $100,000, in this article, I listed five companies to form a $10,000 growth portfolio and gave my reason for each one. The main change was I replaced Bank of America with Monsanto.

With the market's recent correction from reaching all time highs, now would be a great opportunity for a long term investor to get involved at a lower price.

Disclosure: The author is long KORS.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.