A rock-solid portfolio built to last


Recently, I was asked to come up with investment ideas that could be held in a portfolio for the next ten years.  

Here are some stocks worth considering: Gilead (GILD), iShares Core Midcap (IJH) and Chevron (CVX).

What links these securities together are a high return on equity, limited debt and a reasonable price-to-equity ratio compared to future earnings growth prospects.

 

rock-solid-portfolio

 

Gilead

Gilead trades at about 10 times earnings with a return on equity of more than 90%.  

The balance sheet sports a huge cash hoard and I believe management has proven adept at acquiring product when necessary.  

The current pipeline of new products looks good and the industry certainly is forward looking.  

In my opinion, this is a company that has a bright long term future.

 

Solid Performer

Another solid performer in my opinion is the iShares Core S&P Mid Cap ETF (IJH).  

The fund holds many well financed high ROE companies with good growth potential.  

Most sport strong balance sheets and are big enough to grow without the need for external funding.

 

Winners

By design the index is composed from a diverse lot of 400 companies such as Foot Locker (FL), Church & Dwight (CHD) and Alaska Airlines (ALK).  

Although the average P/E of the mid-cap index is normally higher than that of the large cap S&P 500, we believe the growth potential of these companies more than makes up for the additional cost.

 

Big Oil

The last company I think is worth a serious look is Chevron (CVX).  

With the collapse in oil prices the stock price has been cut almost in half. 

I believe that at the recent low of about $70 per share the margin of safety is large enough to justify commitment to this issue.  

In the next few years, earnings will suffer and as a result the dividend may be reduced.  

 

Well-Diversified

However the basic business is strong and well diversified.  

In my opinion, management has been a great allocator of capital and has built a wide economic moat around the company.  

The balance sheet is strong and the company’s superb position in downstream products, in my opinion, should continue to provide an excellent long term return on investment.  

I believe that holding the stock and reinvesting the dividend will provide a relatively safe high return on investment to an investor’s portfolio.

 

Photo Credit: Jonathan Reid via Flickr Creative Commons

 

Certain investments discussed are held in client accounts as of October 5, 2015. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
Any investments discussed in this presentation are for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.


CJ Brott

About CJ Brott

We are a registered investment adviser firm based in Texas. CJ Brott founded our firm in 1984. Since 1980 he has been lecturing regularly on financial topics at Southern Methodist University. He is a sought-after public speaker and has been interviewed by various national and local financial publications. We benefit from CJ’s many industry contacts when making investment decisions.