My 20-Stock Value Play

The U.S. stock market crashed in March 2020, but quickly recovered and then went onto to reach new all-time highs. The investment, SPDR S&P500 ETF Trust (SPY), is one of my core holdings.

By Michael Hooper

The secret to my portfolio is owning fairly conservative value-play stocks with strong balance sheets, along with index funds, ETFs and bonds. Diversification is important, especially during downturns and crashes.

I have averaged an 11.5% annual return on my investment portfolio since 2009, according to numbers generated by Charles Schwab's performance tab. I am happy with this return. I could have done better by putting the entire portfolio in the S&P 500 Index, which generated a 15.2% annual return since 2009, but that increases risk and volatility.

About 62% of my portfolio is invested in income producing securities such as dividend paying stocks, ETFs, bonds and mutual funds. My equities include a balance of railroads, consumer stocks like PepsiCo (PEP), and S&P 500 ETFs. When quarterly income flows into my investment accounts, I buy more stock.

Berkshire Hathaway (BRK/B) represents 38% of my portfolio, partly because I've been an investor since 1997 and our original investment is up more than 10 times. Berkshire Hathaway is like a mutual fund because the holding company owns over 100 great businesses, such as Geico and BNSF Railway. And it has over $145 billion in cash and a strong balance sheet. Warren Buffett, CEO, won't be around forever but I'm sure the company will continue to do well long after he's gone. He's set it up that way. Berkshire Hathaway is currently trading at 1.38 times book value, that's at the high end of a trend that began in spring 2020 when it bottomed around 1.2 times book value. When it was trading that low in 2020, the company bought stock back because management thought it was so cheap.

The S&P 500. I like SPDR S&P 500 ETF Trust (SPY). The S&P 500 index is the standard by which all large cap investors are measured. Most managers cannot beat the index so why not just own the index. Every investor should own some of the S&P 500. I used to put my entire 401K into the S&P 500 at my employer. This strategy worked out pretty well. Right now the S&P 500 represents about 9% of my portfolio. But another 6% of my portfolio is in a similar investment, The Proshares S&P 500 Dividend Aristocats ETF (NOBL) is an ETF that pays a quarterly dividend yielding more than 2%.

I like Union Pacific (UNP), Norfolk Southern (NSC) and Canadian National Railway (CNI). These three are domineering railroads in their regions. They represent about 10% of my portfolio.

I like Google (GOOG), Apple (AAPL). These two assets represent 2% of my portfolio.

I own United Airlines (UAL), Expedia (EXPE), and Southwest Airlines (LUV). These three assets represent less than 1% of my portfolio. I'm betting travel will come back some day after the Covid-19 crisis subsides. I already have big gains in these stocks, but I think they have more to go.

About 10% of my portfolio is in PepsiCo (PEP) Coca-Cola (KO), Church and Dwight (CHD), Hershey (HSY). I like these companies for their steady earnings and dividends. My favorite is Church and Dwight, the company produces baking soda, condoms, oral hygiene products and vitamins. Sales of its vitamins have boomed during the Covid-19 pandemic.

Another 3.6% of my portfolio is in utilities including Evergy (EVRG) and Dominion (D). The utilities have paid dividends but haven't grown in value for the past year.

I own quite a bit of ishares Core US Aggregate bond index (AGG). And I own some railroad bonds from BNSF Railway and Union Pacific Railway. In total, the bonds represent about 20% of the portfolio.

I also have small positions in Aphria (APHA), Casey's (CASY) and MGP Ingredients (MGPI). I think the cannabis industry has a lot of potential and Aphria is a good bet.

In March 2020, I wrote an article calling on all young people to invest in the stock market after it crashed 20% because of the Covid-19 pandemic. The stock market recovered quickly, so anyone who invested at the bottom made 20% to 70% returns. I bought Apple in March 2020, and it's up 121%.

Stock prices are at all time highs but they could still go higher before they fall again. I expect a 10% correction sometime. If the majority of people get vaccinated, and Covid-19 numbers continue to drop, then perhaps we will see a reviving economy and opportunities for more job growth.

Editors Note: The author owns shares in all the stocks mentioned in this article.