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Best Buy Co., Inc. (BBY), Apple Inc. (AAPL), Regeneron Pharmaceuticals Inc (REGN): How Should You Diversify a $10,000 Portfolio?

Best Buy Co., Inc. (NYSE:BBY)New age diversification is investing in the 21st century, and understanding that very few have the patience or the discipline to buy, hold, and forget for decades at a time.

In today’s information age, people like to be active, and follow their investments closely. Thus, new age diversification allows each investment to serve a purpose in your portfolio.

In previous Motley Fool articles, I touched on this topic with both cyclical and secular targeted portfolios, but what about for those with different levels of income?

In my book, Taking Charge With Value Investing (McGraw-Hill, 2013), I discuss this topic from all angles, from types of investment, industries, portfolio size, goals, etc., but in this piece, I am looking at a very specific investor; those with a portfolio of $10,000, or an investor who is just starting out.

Preparing to buy & finding your goals

If you are investing $10,000, chances are you are a fairly new investor, and are willing to take larger risks for larger rewards.

In theory, as wealth grows, so does your avoidance of risk. Personally, I know all about this “theory.” Looking back 15 years, it’s a wonder I didn’t go broke, as I took risks that I wouldn’t even consider today.

The idea of having a smaller portfolio is knowing that your goal is to grow, but also taking calculated risks that will still leave you well diversified and protected.

What to buy?

Company Industry Amount
Best Buy Co., Inc. (NYSE:BBY) Retail $3,000
Apple Inc. (NASDAQ:AAPL) Technology $3,000
Regeneron Pharmaceuticals Inc (NASDAQ:REGN) Biopharmaceutical $4,000

With $6,000 invested into Best Buy Co., Inc. (NYSE:BBY) and Apple Inc. (NASDAQ:AAPL) combined, this portfolio would have 60% of its holdings returning a dividend yield of almost 3%.

Many might say, “why Best Buy Co., Inc. (NYSE:BBY)?”

It is a logical question, but aside from it being a retail holding, the company is very cheap at just 0.20 times sales. It also has catalysts to produce additional gains, with its new store-in-a-store concept and online sales tax that could boost its sales.

Mant might say, “why Apple Inc. (NASDAQ:AAPL)?”

Apple trades at just seven times next year’s earnings minus cash and has a price/sales ratio of just 2.30; both of which are at least 50% less than competitor Microsoft Corporation (NASDAQ:MSFT). Moreover, Apple Inc. (NASDAQ:AAPL) is growing faster than Microsoft, but is cheaper due to it being in a natural transition between growth and value.

The transition from growth to value is something I often discuss, and I believe is very important for investors with small portfolios seeking large gains. In a sense, these are stocks that can be purchased for prices that are illogical.

Netflix, Inc. (NASDAQ:NFLX), Green Mountain Coffee Roasters, and even Best Buy Co., Inc. (NYSE:BBY) are examples of transition stocks. It occurs when a company is expensive as a growth stock, but then falls as it becomes more stable.

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