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

So what makes these select few stocks above so special? Honestly, nothing, these are just examples, and would fit into a portfolio. However there are several good selections in the market.

• Lorillard has gained more than 65% over the last five years and still trades below the market in terms of valuation. It is a tobacco company, and if there’s anything we’ve learned it’s that people will continue to smoke in any market regardless of its health risks or the number of commercials or politicians that protest against smokers, or regardless of tax increases implemented.
• Most investors prefer The Coca-Cola Company (NYSE:KO) or PepsiCo, Inc. (NYSE:PEP) in the beverages space. However Dr Pepper Snapple trades with a lower P/E ratio, better dividend, and has performed better with a 65% gain over the last five years.
• Eli Lilly is among the few large pharma companies expecting flat revenue in 2013, and has been minimally affected by the patent cliff. The company has a great yield and remains consistent in the market.
• McDonald’s, much like Lorillard, will perform well regardless of market risks. In fact, McDonald’s actually performs better in down markets, most likely because it is affordable for consumers.
• The Southern Company is a utility company in a growing market. Of course there are other good selections such as American Electric Power Company, Inc. (NYSE:AEP) or Consolidated Edison, Inc. (NYSE:ED), however SO has traded with the least amount of volatility; exactly what you seek in a secular investment.
• The Procter & Gamble Company (NYSE:PG) is the preferred choice in the household products space; however The Clorox Company is the better investment. Clorox is expected to see greater growth in 2013, is cheaper compared to sales, pays a better dividend, has returned more capital to shareholders, has a lower beta, and higher institutional ownership. Therefore, it’s better.

Conclusion

In my new book, Taking Charge With Value Investing (McGraw-Hill) I discuss diversification on many different levels, and the topic in this article barely scratches the surface of new age diversification. However, the idea of how to diversify in a flat market remains the same — that is to prepare for a flat market but to be prepared for a bull market with good value investments. The principles in this article provide a good head start in preparing yourself for the next decade.

The article Diversifying with Secular Investments in a “New Age” Market originally appeared on Fool.com and is written by Brian Nichols.

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