03-19-2014, 12:38 AM
Welcome, Concasto. Glad you joined us. I hope you mosey on over to the Intro section and tell us a little more about yourself.
Since you asked ...
Although I'm not as pessimistic as Alex at times (but he can build circles around me), I think buying stocks for 50 years of holding may be optimistic. Maybe it would be more realistic to buy for the next 20 years and keep evaluating along the way.
Since it sounds like you don't have any long-term experience in the market, this will be a journey for you. Before you start investing, I'd highly recommend working on a plan -- a business plan for your portfolio. Include in it your goals, how you plan to get there and specific criteria you're interested in having met before you invest. Also include what circumstances would cause you to sell a company. If you need some guidance, go to Seeking Alpha and search on David Van Knapp and Bob Wells. They have articles (I think 2 or 3 years back time frame) about business plans for your portfolio. It doesn't have to be perfect and expect to revise it as you go along. I think it would help ground you in making decisions. You already are starting to plan with your thoughts in the original post.
As to your initial "portfolio" ideas, I'll start with your CVX (or XOM or COP) aversion. Before "someone" finds the Holy Grail of free energy, the world's economy and civilization will still be based on fossil fuels. They've been working on harnessing fusion since they figured out how to unleash it with the hydrogen bomb. Still nothing commercially viable. Solar, geothermal and wind are growing but we still have technical hurdles to cheap and ubiquitous. Lastly, if you think the management of "Big Oil" is going to sit by and let "someone" destroy their companies, I think you're mistaken. All the majors are watching and working on ways to come up with a similar idea. Can you imagine the competitive advantage they'd have if they found a solution? I think you're dismissing the sector too quickly.
REITs do have their good and bad points as Alex pointed out: very little cash laying around, dependent on the financial markets to grow and credit market sensitive. However, with their higher yields, you can get a good compounding stream going if you reinvest the distributions. I wouldn't overweight the sector -- especially at your age. I'd especially look over the medical REITs. All us old farts are going to need some care as we age (and there are a ton of us
).
MCD? Yup, as much a real estate company as a food company. Management has had a tough time for the last year or so and probably for a few more years to figure it out. In the meantime, they'll plod along increasing their earnings and dividend. I'd look at GIS, HRL & MKC also. KRFT may be speculative right now since they only have a 1 year track record on their own. I'd suggest you go to their IR site and watch the CAG presentation. I think management has a plan going forward.
PEP/KO? I think both have a diversified product base and will adapt to the market as needed. They both have strong and efficient distribution networks and popular, well-known brands.
INTC? The textbook example of the powerhouse company that got arrogant and complacent. They have incredible engineering and brutal marketers but they need to respond to the market. They'll be around but it will take a little longer to get back on track. They also have enormous capital needs. All that being said, I think the new CEO is bringing them back to reality and you could see things happen over time. You might look at MSFT and AAPL too.
JNJ? Agree, this is one diversified stalwart. In many sectors of healthcare and consumer health & beauty. Good financials and management is back to business after Weldon focused more on his paycheck than running a great business. In the drugs, you might also look at ABBV. Medical devices could include MDT, BAX or BDX also. Although they haven't paid a dividend for long, I'd think seriously about AMGN.
UL/PG? Both good choices although you might want to look at CL, CLX (despite their high debt load) or CHD also. Consumer staples are definitely a core sector.
BBL/BHP? I agree with Alex here. Long cycles and capital intensive. If you really want basic materials, then BBL seems to be a good choice. You might also look at APD although I'd prefer industrials over basic materials. For industrials, I'd take a peek at MMM, UTX or HON. GE looks very interesting but for some reason, I'm not as big a cheer leader.
SO? Utilities will be around for a while yet (see big oil above). SO seems to be a pretty solid company. You might also look at WEC although they aren't as geographically large nor as well diversified in their fuel mix as SO.
All that being said, I probably could have saved a lot of hot air if I just said ditto to Kerim's post and add health care and oil.
Lastly, watch your valuation. Don't overpay and have patience. There's a long period between the acorn and the mighty oak tree.
Since you asked ...
Although I'm not as pessimistic as Alex at times (but he can build circles around me), I think buying stocks for 50 years of holding may be optimistic. Maybe it would be more realistic to buy for the next 20 years and keep evaluating along the way.
Since it sounds like you don't have any long-term experience in the market, this will be a journey for you. Before you start investing, I'd highly recommend working on a plan -- a business plan for your portfolio. Include in it your goals, how you plan to get there and specific criteria you're interested in having met before you invest. Also include what circumstances would cause you to sell a company. If you need some guidance, go to Seeking Alpha and search on David Van Knapp and Bob Wells. They have articles (I think 2 or 3 years back time frame) about business plans for your portfolio. It doesn't have to be perfect and expect to revise it as you go along. I think it would help ground you in making decisions. You already are starting to plan with your thoughts in the original post.
As to your initial "portfolio" ideas, I'll start with your CVX (or XOM or COP) aversion. Before "someone" finds the Holy Grail of free energy, the world's economy and civilization will still be based on fossil fuels. They've been working on harnessing fusion since they figured out how to unleash it with the hydrogen bomb. Still nothing commercially viable. Solar, geothermal and wind are growing but we still have technical hurdles to cheap and ubiquitous. Lastly, if you think the management of "Big Oil" is going to sit by and let "someone" destroy their companies, I think you're mistaken. All the majors are watching and working on ways to come up with a similar idea. Can you imagine the competitive advantage they'd have if they found a solution? I think you're dismissing the sector too quickly.
REITs do have their good and bad points as Alex pointed out: very little cash laying around, dependent on the financial markets to grow and credit market sensitive. However, with their higher yields, you can get a good compounding stream going if you reinvest the distributions. I wouldn't overweight the sector -- especially at your age. I'd especially look over the medical REITs. All us old farts are going to need some care as we age (and there are a ton of us
).MCD? Yup, as much a real estate company as a food company. Management has had a tough time for the last year or so and probably for a few more years to figure it out. In the meantime, they'll plod along increasing their earnings and dividend. I'd look at GIS, HRL & MKC also. KRFT may be speculative right now since they only have a 1 year track record on their own. I'd suggest you go to their IR site and watch the CAG presentation. I think management has a plan going forward.
PEP/KO? I think both have a diversified product base and will adapt to the market as needed. They both have strong and efficient distribution networks and popular, well-known brands.
INTC? The textbook example of the powerhouse company that got arrogant and complacent. They have incredible engineering and brutal marketers but they need to respond to the market. They'll be around but it will take a little longer to get back on track. They also have enormous capital needs. All that being said, I think the new CEO is bringing them back to reality and you could see things happen over time. You might look at MSFT and AAPL too.
JNJ? Agree, this is one diversified stalwart. In many sectors of healthcare and consumer health & beauty. Good financials and management is back to business after Weldon focused more on his paycheck than running a great business. In the drugs, you might also look at ABBV. Medical devices could include MDT, BAX or BDX also. Although they haven't paid a dividend for long, I'd think seriously about AMGN.
UL/PG? Both good choices although you might want to look at CL, CLX (despite their high debt load) or CHD also. Consumer staples are definitely a core sector.
BBL/BHP? I agree with Alex here. Long cycles and capital intensive. If you really want basic materials, then BBL seems to be a good choice. You might also look at APD although I'd prefer industrials over basic materials. For industrials, I'd take a peek at MMM, UTX or HON. GE looks very interesting but for some reason, I'm not as big a cheer leader.
SO? Utilities will be around for a while yet (see big oil above). SO seems to be a pretty solid company. You might also look at WEC although they aren't as geographically large nor as well diversified in their fuel mix as SO.
All that being said, I probably could have saved a lot of hot air if I just said ditto to Kerim's post and add health care and oil.
Lastly, watch your valuation. Don't overpay and have patience. There's a long period between the acorn and the mighty oak tree.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan