The accompanying table presents a 20-stock defensive growth portfolio which I believe will outperform the overall market as measured by the S&P 500 Index as the current panic trade comes to an end and investors stop selling stocks regardless of their fundamentals. The average PEG ratio for this group of stocks is below one and the average dividend yield of 4.4% is nearly two times the S&P 500 ETF (SPY) yield of 2.4%. All of the stocks have a market cap over $1B with an average of just under $75B and the industry groups represented are skewed toward defensive sectors, although consumer tech growth stocks such as Apple (AAPL) and RIMM are also included.
In the natural resource and energy space, I chose Freeport McMoRan (FCX), Sasol (SSL), Chevron (CVX), and Devon Energy (DVN) -- which trade as deep value plays with an average PE of about five and average yield around 5% for the quartet. In the agri-biotech space, I chose Monsanto (MON) as a bullish play on the ever-growing demand for food in the world and the ability to improve farm yields through seeds and fertilizers.
In the healthcare sector, I chose Pfizer (PFE) for a turnaround, big pharma play with a strong balance sheet and fat dividend yield. Abbott Labs (ABT) has a more diversified mix of healthcare business segments beyond pharmaceuticals, including diagnostics and nutrition. Invitrogen (IVGN) recently raised its earning guidance and it supplies the tools and systems used in the drug discovery process, genetic analysis, and diagnostics. I like Amgen (AMGN) in the rapidly consolidating biotech space and Teva Pharma (TEVA) as the generic drug industry leader, which also develops and markets brand name pharmaceuticals such as Copaxone.
Some other core holdings in the portfolio include Verizon (VZ), AT&T (T), Procter & Gamble (PG), and Philip Morris International (PM) for the defensive nature of their businesses and above-market dividend yields. Burlington Northern (BNI) was chosen as part of a bullish outlook on rail transport, which has pricing power due to demand for the fuel efficient transport of ag and energy commodities and the limited ability to increase rail capacity in the U.S. Wells Fargo (WFC) is the only financial company in the portfolio since the company will likely benefit from the Wachovia (WB) acquisition. Finally, I chose Microsoft (MSFT) and Google (GOOG) as tech plays on internet advertising, search, and software.
$60.17 (10/12/08)
