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Core Portfolio Holdings: The First 5 of 10

Posted
6/7/2012 11:47:00 AM
By: Ted Allrich
Referenced Stocks:CSCO;CVX;IBM;INTC;XOM

Core Portfolio Holdings: The First 5 of 10

Everyone always wants to know what stocks to buy.  We don't recommend specific stocks at The OLI, just stocks that are interesting and worthy of your attention and time, either for good or bad reasons.  But there are basic stocks or investments that every investor should own, core holdings of any investment strategy.  These are a great way to start your portfolio.

You only need to buy 100 shares of each or even 50.  You don't have to buy them all tomorrow, but you should purposely focus on these sectors so that you have a balanced, diversified group of stocks.  Once you've put these together, you can play at the fringes with trading and IPO's and other speculative ideas.  Also, when you buy in any of these specific stock sectors, buy the best stock in the group, not the weakest one, hoping it will get stronger.

1) An oil stock.  While oil prices fluctuate wildly, it's hard to make a case for the black stuff going back to $30 a share.  That's because China and India need much more that they're getting if they're going to continue strong economic growth.  Buy one of the biggest and financially strongest oil stocks (like XOM and CVX) in this sector and hold on.  They will have some ups and downs, but the dividends will be safe.

2) A tech stock.  Technology isn't the most popular part of the market right now.  But technology is what brings higher productivity.  Pick one of the large cap innovators (like INTC or CSCO or IBM), ones that have core products such as semiconductors or hardware that many other tech companies need.  These are more volatile and go through cycles so be prepared for large stock price moves, up and down. 

3) An index fund.  These are funds that track certain groups of stocks such as the Standard and Poor 500 or the Russell 2000.  Pick one of the index funds that tracks the large cap stocks such as the S&P 500.  That way you'll have part of your portfolio in the biggest and best companies in the U.S.

4) A large drug company.  Drugs are the most efficient way to treat many diseases.  The large drug companies have strong cash flows, and the best ones have strong pipelines of new drugs.  Pick one that has a good dividend and isn't currently in the courtroom very much.  Or you can take a little more risk and buy one that is.  Most of them have very secure dividends.

5) A large biotech company.  While the large drug companies are curing many diseases, the cures for cancer and other viruses will most likely come from the biotechs.  Again, stay with the proven winners, the ones that have strong revenues and healthy profits.  There aren't many of them, but the ones that have delivered should continue to do so for some time to come.

Next week: The other 5.

- Ted Allrich
June 7, 2012