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

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

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

How 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

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!