Diversifying with Secular Investments in a “New Age” Market: Lorillard Inc. (LO), Dr Pepper Snapple Group Inc. (DPS)

Page 1 of 2

Diversification is always a hot topic among retail investors. In my opinion, there are many who have a skewed perspective when it comes to diversification, believing that index investing is most effective. However, we have more than a decade of proof that this is incorrect, and proper diversification must be changed according to current market conditions. As a result, I am sharing my views, as I have experienced success in a flat market, and am looking at the importance of secular diversification in particular.

This Isn’t Your Father’s Market

If you were to go into your money manager or financial advisor’s office he/she would show you a chart reflecting an incredible annualized return, most likely 30 years, of more than 12.00%. This can be appealing to many, but as many retail investors know, this return is not reflective upon our current market, but rather the bull markets of the ’80s and ’90s.

Lorillard Inc. (NYSE:LO)In our market, since 2000, the annualized return is under 2%. With that being said, index investing and your father’s diversification strategy is not effective in this market. You need a “new age” diversification strategy that will allow for performance in a flat market.

New Age Diversification

A successful portfolio strategy in this market consists of secular, cyclical, and speculative investments that serve an actual purpose within your portfolio. This works more effectively than trying diligently to own a stock in every single industry with no more than 7% of your portfolio being in one stock. The truth is that there is no one size fits all, and diversification should be determined by the size of your portfolio, as goals change with wealth.

One of the key pieces in a new age portfolio that is built to succeed in any market is a balanced position in secular companies. These are investments that will remain consistent regardless of the economy, such as food, drugs, and some retail. Like I said, there is not a one size fits all approach with this strategy — someone with a smaller portfolio may want fewer secular investments to take on more risk, while someone with a larger portfolio may prefer more secular investments for security. Therefore, here are a few things you want to look for in a good secular investment, and a few good stocks that meet the requirements:

  • Low beta (stocks that trade with less volatility than the market)
  • P/E ratio below the S&P 500/sector (roughly 16x)
  • High yield (investments that outperform bonds)
  • High ownership (consistent ownership with institutions)
  • History of raising the dividend & returning capital to shareholders
  • Industry (no technology or services stocks)

Of course there is more than goes into finding a good investment in addition to the things listed above. However, this is a good starting point, and will allow you to then narrow your selections. Therefore, here are a few top stocks that meet the requirements.

Company Ticker P/E Ratio Yield 5-year Dividend Increase Institutional Ownership Beta Industry
Lorillard Inc. (NYSE:LO) 14.64 5.35% 245% 98% 0.37 Tobacco
Dr Pepper Snapple Group Inc. (NYSE:DPS) 14.50 3.54% 125% 98% 0.72 Beverages
Eli Lilly & Co. (NYSE:LLY) 14.83 3.61% 6% 73% 0.68 Drugs
McDonald’s Corporation (NYSE:MCD) 17.77 3.23% 105% 64% 0.38 Restaurants
The Southern Company (NYSE:SO) 16.73 4.80% 25% 46% 0.26 Utilities
The Clorox Company (NYSE:CLX)
19.41 3.08$% 60% 71% 0.39 Personal & Household

If you have a portfolio in the neighborhood of $200,000 then the above holdings might be ideal. This secular portion of the portfolio has tobacco, beverages, drugs, restaurants, utilities, food processing, and personal & household products. It indirectly is very diversified, yet cherry picks the strong holdings from each industry, rather than index investing in an entire sector and buying the garbage with the diamonds.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!