For investors with a long-term time horizon (five years or greater), adhering to a buy-and-hold strategy as it pertains to equities as an asset class is not dead. It never has been. However, for those same investors, adhering to a buy-and-hold strategy as it pertains to a particular security is dead. In fact, we believe that this strategy should never even have had a pulse.
For example, with most major stock indices at or near record high, household names like Bank of America, Citigroup, General Electric, and JC Penney remain more than 75%, 90%, 60% and 75% off their all-time closing highs. Now, that is not to say that at this point in time they don’t merit an investment. However, buy-and-homework or buy-and-monitor always trumps buy-and-hold. Also, keep in mind that every bull market is led by different leaders. Some of the leaders of this current bull market (after all stocks have more than doubled from their early March 2009 lows), let us call them new blue chips, that you might consider for an investment at these levels or on pullbacks include:
In the Consumer Discretionary space, some new blue chips would be Starbucks(SBUX), YUM! Brands (YUM), Dunkin’ Brands (DNKN), and Diageo, PLC (DEO). With over 18,000 stores worldwide, the name Starbucks is almost synonymous with coffee and in addition to providing this “necessity,” it also is a meeting place for business and pleasure. We would look to enter this as an investment on pullbacks. Another name in this industry is YUM! Brands (YUM), operators of Taco Bell, Pizza Hut and KFC, destinations for many Gen-X’ers. In addition YUM continues to expand aggressively worldwide, especially in China. Given the recent selloff in response to a food scare in China, we believe shares can be purchased at these levels. Dunkin’ Brands (DNKN), once a publicly traded company that was taken private and now is public again, is looking to leverage its lock on the coffee at a reasonable price market. In addition, DNKN is expanding its list of available food items as well as specialty and iced coffees. We believe DNKN is a buy at or a little below these levels. Finally, Diageo, PLC (DEO), the British distiller, brewer and bottler of household names including Johnnie Walker, Bushmills Irish Whiskey, Ketel One Vodka, Captain Morgan, Bailey’s Irish Cream and Guinness, is a core “sin” stock holding. Given the run-up in the stock market as well as DEO, we would look to buy on pullbacks.
Nike, Inc. (NKE) is the indisputable leader in the athletic footwear, equipment and apparel industry. NKE offers enough gear to appropriately prepare any athlete or weekend warrior for “competition.” We believe shares of this worldwide leader can be bought at these levels.
Two more of the new blue chips would be Mastercard (MA) and Visa (V). As both are global leaders in electronic transaction and payment processing systems, we believe equity investors would be wise to include one of these giants in their portfolios. After all, we are slowly moving to a cashless society, once dominated by debit and credit cards. Furthermore, MA and V do not assume credit risk as that is left to the underlying banks or other financial institutions. MA and V generally just take a percent of the transaction cost.
At the right price, most likely below current levels, we like retailing giants Amazon.com (AMZN) and Priceline.com (PCLN). Amazon, with its more than 88,000 employees, started off as an online retailer for books, but has expanded into dozens of other categories thereby pushing further and further into the wallets and pocketbooks of global consumers. Meanwhile, PCLN, the online travel company has become the place to shop for hotel reservations, airline tickets and rental cars. This is the leader in online travel.
What would a list of new blue chips be without Google (GOOG), which came public nearly ten years ago and has morphed from a strict search company to one that connects individuals and companies looking for information with that information. No other company provides online advertising results to the number of potential customers like GOOG does. In addition, Google with their Android operating system is looking to push into other areas, including music. We would purchase one-half our intended position in GOOG and wait for a pullback to buy the balance.
How could a company that was started by two friends more than a century ago be labeled a new blue chip? Two words – Harley-Davidson (HOG). Almost bankrupt some time ago, this iconic American brand has reinvented itself and now appeals not only to its albeit stereotypically traditional customers, but now to the middle, upper-middle and wealthy classes alike. Nobody just buys a Harley. There is the gear, the apparel, the bumper sticker, the helmet. Yes, owning a Harley is a way of life. We would recommend HOG at these levels.
Two stocks in the biotechnology field that have run a long way would include Celgene (CELG) and Gilead Sciences (GILD). CELG which specializes in drugs meant to fight cancer and GILD which specializes in drugs that addresses HIV have a current stable of multi-billion dollar drugs as well as stuffed pipelines. Given the run-up, we would look to establish an initial position on five to ten percent pullbacks.
We like Lowe’s Companies (LOW) and Target Corp (TGT) as ways to invest in the continuing rebound in housing as well as the recovering American consumer. With interest rates at multi-decade lows Americans are refinancing their mortgages at a record pace putting more disposable income in their respective pockets. What better way to spend these new found dollars than at LOW and TGT. A declaration of “let’s remodel the kitchen, the living area, the bedroom, or the you name it,” results in more business for LOW and TGT. We would buy these two household names here.
Finally, with the potential of becoming a “new blue chip,” but not quite yet there and with substantial risk, we mention Cheniere Energy (LNG). LNG, which builds and maintains facilities capable of storing and exporting natural gas, is on the cutting edge of the growing energy revolution in the United States. We would buy one-half of our intended position at these levels and look to fill out that position should LNG pull back.
So, there they are, the new blue chips! Remember to invest with your head and not your heart or stomach!