Let's make a 5-6 stock portfolio!

[crimsonghost747]

Okay guys, thought I'd pick your brains with this one. It's a pretty simple project but I know you guys will have some great ideas that I haven't thought of.

Long story short, someone I know is starting to invest and asked for my help in designing a portfolio. Tiny amounts in relatively steady monthly deposits, anywhere between $100 to $400 or so per month. This is the very basic regular stuff that we all know: long-term growth, DGI, slow & steady. This is some sort of a retirement or "maybe use it one day for something" portfolio for a person under 30 years and dividends are appreciated but not mandatory.

I'd like to keep it quite simple at 5-6 stocks, at least for a while. One or two of those could very well be an ETF.  ETF's can be whatever, but stocks should only be US based companies. (broker and tax reasons)


Current portfolio: (just bought the first ones an hour ago)
JNJ
LHX

So we have healthcare and defense covered. 
I'm thinking of adding something along the lines of:
1 tech (is there anything here not ridiculously overvalued?)
1 utility 
1 basic super safe DGI company. Something like PEP, HON, LOW/HD

The floor is yours, ladies and gentlemen. Any ideas/suggestions/tips are more than welcome.

[fenders53]

Thankfully we are averaging in so we don't have to debate current valuation.

A consumer staple isn't optional. I like PEP. I especially like PEP because it occasionally dips for no solid reason so you can add shares when it makes sense. Soda isn't high growth but the salty snack portfolio sells everywhere. The distribution is in place and they'll add microwave pizzas or whatever to their convenience store/pub route if they need to keep it moving forward.

Same UTEs as always from me. WEC-XEL and ALE have a green plan solidly in progress. The regulated business keeps it stable but they have accelerating green projects going on for true growth. I am going to be amazed if NEE the market darlng outperforms them from here the next five years at twice the current valuation and smaller dividend. They are going to smoke the higher yielding slow growth UTEs for years to come. Pick your add points with WEC. It's an eternal hold or sell from half the analysts. Regionally popular and I doubt that changes when they keep exceeding estimates with their green game. I hold shares and trade it for entertainment because it's been easy money on any dip.

I'm not the tech expert but AVGO looks good. I think ETF SOXX is can't lose and safer than any individual tech stock. They own so many high quality stocks and some of them aren't stupidly expensive. If you are going to do an ETF tech is where it should be.

[ken-do-nim]

When someone asks me what to invest in when they are just starting a new portfolio, I always answer ETFs for the initial investments, going with individual stocks later. And in particular, I tell people to start with VOO, the best S&P 500 index fund.

But in the spirit of DGI ...
tech - AVGO
utility - WEC
industrial - CAT
retail - TGT

I think with JNJ you already have super safe covered. It doesn't want to budget off of $160.

[fenders53]

(03-26-2021, 01:57 PM)ken-do-nim Wrote: When someone asks me what to invest in when they are just starting a new portfolio, I always answer ETFs for the initial investments, going with individual stocks later.  And in particular, I tell people to start with VOO, the best S&P 500 index fund.

But in the spirit of DGI ...
tech - AVGO
utility - WEC
industrial - CAT
retail - TGT

I think with JNJ you already have super safe covered.  It doesn't want to budget off of $160.

Agreed, but in a 6 stock port two super safe but growing DGI stocks and a growing and just as safe UTE isn't a bad place to be when your friend is trusting you not to disrupt his sleep and net worth.      

I'm jealous.  All my family and friends know I follow the market.  They mostly ask me how to turn $1K into $100K by next Christmas. I inform them it might take 30 years of steadily wasting some perfectly good spending money on stocks to make their first million and they lose interest lol.

[crimsonghost747]

Thanks for the replies so far.

With utilities, XEL certainly looks good. Do you guys have any opinions about SRE? I noticed it during my own utility search but didn't have time to read much on it yet. Looks like high growth for a utility and a pretty low valuation. There are no renewables in there but from what it looks like it's also more focused on distribution rather than generation. (and a lot of LNG infrastructure too)

This will be a work in progress for a while since the amounts are so small that it just doesn't make sense to buy more than 1-2 companies per month.
But I'll keep you guys updated once further decisions are made.

[fenders53]

SRE is a California based utility. If any of my utilities announce that I will sell them before the market closes. It's risk I don't need in a utility investment. Favorable and stable regulatory environment is important to a regulated utility. Other than that SRE looks good.

[crimsonghost747]

(03-27-2021, 04:21 AM)fenders53 Wrote: SRE is a California based utility.  If any of my utilities announce that I will sell them before the market closes. It's risk I don't need in a utility investment. Favorable and stable regulatory environment is important to a regulated utility.  Other than that SRE looks good.

Thanks for this.
I knew there had to be something that I'm seeing because it just looked cheap compared to many other utilities.

[fenders53]

(03-27-2021, 06:29 AM)crimsonghost747 Wrote:

(03-27-2021, 04:21 AM)fenders53 Wrote: SRE is a California based utility.  If any of my utilities announce that I will sell them before the market closes. It's risk I don't need in a utility investment. Favorable and stable regulatory environment is important to a regulated utility.  Other than that SRE looks good.

Thanks for this.
I knew there had to be something that I'm seeing because it just looked cheap compared to many other utilities.

Certain sectors are just better for certain states, regions or countries.  I am quite comfortable with a Canadian bank, California tech company etc.  Utilities not so much.  I never saw so much drama in the sector until a few years ago with the CA forest fires, rolling blackouts, insolvent major utility company.  Then Texas said "hold my beer and watch this"    Texas is not regulated if you weren't aware.  This doesn't occur in most US states and a 20yr chart of a major quality UTE is evidence of stability.

Investors were programmed to consider a utility stock as a bond equivalent. That used to be true. Now it's only true if you buy a UTE with a higher current Div and 1% growth rate. I believe the better ones will perform much like a DGI stock over the next ten years as they transition into a mix where renewables comprise 50% or more of the mix. There is a lot of change between here and there. I am glad the US companies waited until it was cost efficient to ramp up. Production is there but storage is not. It will be interesting to watch. I believe I know which UTEs will do it right.

Now I'll try to control myself and not hijack this into a utility thread.

[EricL]

XLU is a nice option for utilities if you can't decide which individual one to buy. Yield may be a touch lower, but it's performed as well as my individual ute picks over the years.

[fenders53]

(03-27-2021, 09:35 AM)EricL Wrote: XLU is a nice option for utilities if you can't decide which individual one to buy. Yield may be a touch lower, but it's performed as well as my individual ute picks over the years.

Nothing at all wrong with XLU dividend, and you'll have added safety.  I will point out why XLU has done better than most individual UTEs though.  Look at XLU holdings.  It is overweight NEE and held plenty of XEL over the years when it was running.  Market darling NEE scares me bad during the next real market downturn because the BIZ performance numbers don't match the software stock PE anymore, but it is still one of my largest positions for now.  XLU was riding on the back of XEL some too over the last 20+ years.  ED and DUK etc assist the XLU dividend.

Anyone considering an individual UTE should spend 10 minutes on the following DD.  Pull up an XLU graph.  I enjoyed the 20 year ride but that's irrelevant now.  It's history and the industry is changing.  Grab a 5 year graph because the transition is in progress for several years now.   Throw up the following as a comparison vs XLU.  NEE-XEL-ED-DUK for total return.  Check some others if you like.  It's all I need to see.  The 4% Div UTE gets swallowed up in a matter of months after purchase by the the ones with some vision. I make as much money trading WEC and ALE but that's more complicated.  It's my opinion they will outperform NEE, XEL and DUK over the next three years but there is no assurance the market will acknowledge better growth.  I own them all just to be safe. 

Somebody want to make this a non utility thread?

[crimsonghost747]

Well, while it's not a utility thread, indeed the portfolio will be 15-20% utility so it is indeed a very valid topic to discuss.

I was secretly hoping for fenders and Eric to jump in with their utility suggestions. Okay okay, I knew you guys would do that. Thanks! I just haven't spent the time in researching US utilities, I know both of you have and I know that both of you know your stuff well enough for me to just wing it based on your suggestions and a bit of my own research.

XLU would probably be exactly what I want for this one and maybe even for my own portfolio, however I'm stuck in Europe and the Stasi doesn't let me buy US ETF's. I can get a direct XLU copy from several exchanges in Europe but these seem to be the type that reinvests the dividends into the fund itself. That is not a bad option at all regarding taxes but not having that cash hit the account is indeed something I'm not a big fan of and something I need to investigate a bit further.


Current, very much work in progress version:
JNJ (already bought)
LHX (already bought)
XLU or XEL
PEP
Still missing a tech. Looking at the different options you guys posted but even those seem overvalued. And yes I do realize that I probably won't find anything undervalued here... an option would be just to forget about tech for the moment and add one when it finally dips.

Also TMO is probably going into this one. That'll make it two in healthcare but I won't budge from having JNJ in a portfolio like this and I was asked to look into TMO. I do think that the numbers show a good steady DGI company, just quite a bit overvalued right now due to the increased revenue/earnings from covid.

[fenders53]

It's been a good thread. The forum would be much better if we had more than "I bought this or today" threads. Ken and you have been trying for sure. I'm trying to step out of my little box so I'll start a thread for an international stock recommendation. N.A only isn't a truly balanced equity portfolio. I need to shut up and learn on the tech suggestions for your friends port. What you have thrown up so far won't be a big loser. If I were you I would put hi in five solid stocks, and a couple tiny positions in aggressive stuff. He'll always wonder what might have been in with gambler pics. Get that out of the way early so he can understand risk/reward.