Portfolio Strategy Including the Two Best Stocks in the World

There are many ways investors can set up their portfolio for success. Plus, there are so many strategies, goals and risk factors which come into play to determine what investments would work for specific individuals. There are six main stocks and ideas that I believe would be a great fit for just about any investor and several other companies that are worth taking a look at. This strategy may not give you the ability to have the highest return on investment, but that generally requires much more risk, which is not for everyone. The purpose of this strategy is to still gain a high return by having a quality mixture from different sectors, different risk variation and dividends, that will still give an investor the opportunity to beat many other investors. Plus, it includes two stocks that I believe are a must own, Apple (AAPL) and China MediaExpress Holdings (CCME).
1) AAPL – Apple is quite possibly the best company in the world and may soon have the largest market cap of any company as well. In fact, I expect Apple to be the first company to surpass the $1 trillion market cap mark within the next several years. There are many reasons that I believe this, but mainly because they are still growing at a high rate and they are currently undervalued, especially based on forward earnings for the full year 2011. Just recently I wrote an article that mentions the success of AAPL and how a split would help propel the stock further. Among the reasons to own it are the following:
Has beaten estimates for 31 straight quarters;
Average year over year revenue growth since 2003 has been about 40.87%;
2011 estimated revenue is expect to be about $88.5 billion, which represents growth of about 36% compared to 2010;
Over $50 billion in cash, cash equivalents, and marketable securities;
Forward P/E of around 16.5 based on analyst estimates;
31% growth on their Macs, which outperforms the overall PC market;
62% increase in store visitors for Q4 2010 compared to Q4 2009;
Retail revenue increase in Q4 2010 of 75% compared to Q4 2009, with it being their best quarter ever in the retail segment;
iPhone distribution in 89 countries;
Highest customer satisfaction among manufacturers of smart phones for the fourth consecutive time, according to J.D. Power and Associates;
iPad is still in its infancy and they have sold about 7.5 million iPads in the last two quarters of 2010;
14.1 million iPhones sold in most recent quarter compared to 12.1 million Blackberry’s sold;
Apple TV;
Verizon will soon carry the iPhone; and
Huge market in China for the iPhone and should continue to largely expand
Overall, there are so many reasons to own Apple, mainly because of its dominance, continued growth and is still somehow being very undervalued. Based on expectations, it should no doubt beat estimates. Its growth should also continue due to strong demand worldwide, plus the fact that its revenue growth has only been less than 25% one time since 2003 and that was in 2009 when the worldwide economy was not doing very well, but still managed a year-over-year growth of about 14% that year. All the above information can be found through my article posted as well as their year-end transcript. I am sure I left some things out, but there is no reason to not want to have AAPL as part of an investment portfolio.

A couple of the risks would obviously be competition and the health of Steve Jobs. The latter should only have a short-term effect as this is something they can plan for and have something in place. Apple is not just one person. If this were a smaller company it would be a larger concern of mine but they already have the products, market share, expansion, cash, plans, etc., so there should be continued confidence in the rest of management’s abilities.
PRICE TARGET: $1000 in less than 3 years
DIVIDEND: None
2) CCME - China MediaExpress Holdings may quite possibly be the best China small cap company to own. For the individuals that are not aware of what CCME does, they provide the television advertising network on inter-city and airport express buses in China. I know it doesn't sound too lucrative but they don't have any competition for their inter-city buses. This is very serious and they are doing one heck of a job growing their business and taking control of their competitive advantage. This article details why an investor should consider CCME.
Their numbers are amazing and there are also other reasons they should be considered in the tier of companies like BIDU, which should give them a P/E of at least 15. Here are still more reasons to own CCME:
Expected 2010 net income of about $100 million, which is a year over year growth of about 150%;
P/E of less than 6 based on 2010 earnings;
2011 net income expected to be over $140 million (guidance should be given during 2010 year end results);
Quality evaluation from Danduedil67 on I-Hub;
P/E of less than 5 for full year 2011 with full dilution;
Starr International, which was given full access to book and SAT filings, purchased $30 million in stock in January 2010 after doing four months of research and validation of the company towards the end of 2009. Then in October 2010 it purchased another 1.5 million shares;
Global Hunters Securities does extensive due diligence on CCME;
Newly issued dividend policy: 5% - 10% of net profit;
$170 million in cash with very little debt;
Recent insider buying by CFO Jacky Lam and other directors in 2010 – over 125,000 shares which equates to about $1.75 million;
New shopping platform – SWITOW: another intelligent management decision to enhance their advertising platforms;
Signed contracts with Apple, Sony (SNE), Toshiba (TOSBF.PK), Adidas (ADDDF.PK), Nike (NKE), Samsung (SSNLF.PK), Phillips (PHG), Skyworth, Supor and others to feature their most popular products;
Audited by Deloitte – Top 4 auditor; and
Backed by the government currently
CCME has a lot going for them and they continue to show that they are investor friendly, which is very important in the China small cap space. With all of the allegations of fraud in the space, CCME has separated themselves by having a clean report card with continued due diligence by not only a top auditor, but top firms such as Starr International and Global Hunters Securities. They are extremely undervalued and once the market catches on, there is no telling how much this stock can go up based on its future results and strong management. What is there not to like? Also, the estimates above include 7 million shares that will be given out to management for surpassing 2010 expectations and 7 million shares for surpassing 2011 expectations set forth in a prior agreement.
There are some risks involved, especially short term due to the volatility of U.S.-listed Chinese stocks and continued fraud allegations. Their contract with the government lasts through 2012. Somehow, Deloitte, Global Hunters Securities and Starr International missed information of them being fraudulent. Expect more share dilution in the future.
Overall, the positives far outweigh the negatives. Once other investors begin to realize that this company should not be lumped together with all of the other China small caps, again, this stock will have a huge upside. To help get through the volatility, the company is going to pay a small dividend.
PRICE TARGET: $50 in 2 years (could be much more)
DIVIDEND: est. 1% to 2% based on current price
3) American Capital Agency Corp. (AGNC) – A mortgage REIT that invests in agency securities, they enjoy guaranteed interest rates and principal by a U.S. government agency or a U.S. government-sponsored entity. This company pays a very healthy dividend because the stock is extremely undervalued. As long as interest rates stay low, this company should succeed and have had a great formula for success. Here's why:
19% dividend currently;
In my opinion, the securities AGNC carry are safer than mortgage-backed securities as they seem to carry lower rated securities with in the pool;
A stock offering was just completed;
For the nine months ending September 2010, net income was about $150 million compared to $77.9 million in the nine months ending September 2009, representing an increase of about 92.5%; and
According to the chief U.S. economist for Goldman Sachs, its rates are unlikely to rise until 2013.
Mainly, they pay a big dividend and while the rates are low and they are able to take advantage of their current situation, this should be a good hold for the next couple of years. They are undervalued and will continue to pay investors. So even if the stock price does not increase, it is about a 19% return currently without having to do much but pay attention to their income and risks, starting on page 44 of the 2010 3rd quarter 10Q.
PRICE TARGET: $45 in less than two years
DIVIDEND: Currently about 19%
4) World Wrestling Entertainment (WWE) – It is very easy to have a negative view towards the company as many people see it as a joke, but many also see it as quality entertainment. That's why they continue to get overlooked. They do not have the most upside in the world or even a lot of upside over the next few years, but management believes very strongly in paying its shareholders. That is exactly what they have done. Their growth over the years is pretty stagnant and their growth is only slightly up from the mid to early 2000’s.
With WWE, I just want to stress the importance of the dividend because I believe it is a safe haven to earn some extra cash and to help diversify. I know this is an old video but I wanted to post Linda McMahon’s interview on "Mad Money" in 2008. Although it is almost three years old, it is a good representation of management’s thoughts on paying dividends.

WWE currently has about $180 million in cash, cash equivalents and short-term investments. Unless they can begin to grow their income and cash at a higher rate, the dividend will be in danger but it looks safe for the next 2-3 years.
The price of the stock may be stagnant for a little while but I would just do a starter position initially and see if there is any downturn and accumulate more. With a 10% plus dividend for several years, it doesn’t hurt to have it as part of a portfolio. They also have a lot more room for expansion and seem to be doing well overseas.
Several years from now will tell if this is an even longer term hold, but it is a quality dividend investment for the time being.
PRICE TARGET: $20 in 2 years
DIVIDEND: 10% currently
5) Trading – For any investor I believe that having a percentage in which you can do short-term trades can provide several benefits. Obviously, the more risk you are willing to take, the higher you make it as a percentage of the whole portfolio. For most investors, around 5% can help add value to the overall investment. Several benefits are:
It helps keep investors interactive with the market and helps prevent an investor from becoming lazy on just long-term holds.
It helps to force continuous learning and research as trading requires looking at many different aspects of companies regularly which helps an investor to do continuous research.
It helps to learn the psychology involved in the market by paying close attention to reaction of certain stocks on a variety of news.
It can help strengthen the overall portfolio by uncovering information on current investment either positive or negative.
It can help uncover stocks that an investor was initially unaware of by doing more reading and see what is out there.
It just helps to keep an investor involved and interested.
This portion all depends on risk but also requires a lot of research as well. Some of the risks are that trading in a short period of time can also create an investor to become overly emotional with the investment by continually seeing the volatility and being unsure of the investment. I think a small amount can help an investor learn a lot and give them the possibility for even higher returns. One stock that has done me very well trading has been Visa (V) and I just recently wrote an article on its trend over a recent six month span. With trading, it is good not to be too greedy but to ensure selling as the price goes up to a target level.
6) Cash – This is pretty self explanatory. Generally, you do not want to be fully invested because no one can time the markets or stocks perfectly. At least part of a portfolio should be 10% cash or even more. By doing this, it ensures that an investor has funds to buy a current favorite investment on a decent downturn or provides an opportunity to buy a stock that became cheap or came down to a target price. Obviously, if there is a larger downturn, having cash protects an investor from being fully invested in the market.
There are many other stocks that are quality investments as well and obviously risk plays a large factor in regards to an investor’s strategy. A couple of other options would be to add a gold stock and for more risk, a silver stock. MO could also be a quality investment as they have had steady earnings along with a strong dividend. In the China small cap space, I also like ONP as they have recently had an investigation to prove their innocence on fraud allegations and other than a few minor details it cleared them up and once the new equipment is up, their forward earnings are real and they are sporting a forward P/E of about 5. CMG is another long term opportunity as they have an excellent product and excellent company with a lot of room to expand as Chipotle only has 1,000 operations total in the U.S. and Canada and they plan on expanding into China. Obviously, there is much more out there, but regardless of the investment, research is a must.
Good money can definitely be made in the stock market and it has presented us with a big opportunity. To take advantage, again, ensure that intelligence and common sense is used by doing the required work and making adjustments when needed.

Three sectors that will dominate 2011

SEATTLE (MarketWatch) -- What is it about the start of a new decade that makes markets stir?

During the past 30 years, they have been crazy, stressful, amazing periods that have started with great hope but were punctured in some nasty way with war, recession or a serious slump in equity and credit. It's as if the market gods want to take investors by the collar and remind them about risk before allowing them to enjoy the next nine years.

In 1990, Iraq invaded Kuwait during a year when U.S. corporate results were already weak. The price of oil shot up, consumers seized up and the economy tipped into recession -- leaving stocks with losses and investors smarting. But most of the next nine years were among the best for investors in history.

In 2000, the Nasdaq Composite Index (COMP) first lifted 1,000 points to set a record at just more than 5,000 -- then spent the rest of the year giving it all back and more. That initial shot higher was also a tease, belying a decade of trouble for stocks.

So here we are in 2010, having suffered through a painful sovereign-debt drama in Europe, persistent high unemployment in the United States and an inflation wildfire in China. This must be one more plot to get investors off guard.

But don't fall for it this time.

The next year, and even the next decade, could surprise us all with a stunning upside. It is precisely when the world looks like it is about to spin off its axis that the wheel of fortune tends to point higher.

I've run the numbers and come up with three sectors that I think will be dominating the headlines (and markets) next year, as well as some of the top companies in each of these industries.

Mobile Internet

The most sweeping theme in technology for 2010 will keep barreling forward into 2011: the expansion of the mobile Internet in the lives of every American.



If the 1990s were about the rise of the personal computer and the 2000s were about the rise of the corporate and public network, then the 2010s are all about the rise of the mobile network.

With lightning speed, people will come to rely more intensively on keeping their data in the "cloud" rather than on their desktops, and will expect to have all of their entertainment, communication and information-gathering tools at their fingertips at all times. Read about the top 10 IPOs of 2010 on InvestorPlace.

The top stocks, which can be owned as a basket, are the following:

Consumer facing: Google Inc. (GOOG), Apple Inc. (AAPL), Priceline.com Inc. (PCLN), Amazon.com Inc. (AMZN) and Baidu Inc. (BIDU)

Software and equipment: F5 Networks Inc. (FFIV), Cavium Networks Inc. (CAVM), Juniper Networks Inc. (JNPR), Broadcom Corp. (BRCM), Riverbed Technology Inc. (RVBD), Fortinet Inc. (FTNT), ARM Holdings PLC (ARMH), EMC Corp. (EMC), NetApp Inc. (NTAP) and Red Hat Inc. (RHT)
Financials

Financial stocks are the most hated in the marketplace, and therefore the most undervalued. They are hated for good reasons in many cases, as they still have tens of billions of dollars of toxic debt on their balance sheets, and have seen earnings underperform amid a continuing saga of write-offs and low levels of lending. They also are still exposed to weak housing markets, not to mention the sovereign-debt fiasco in Europe.

Still, at a certain point, all of these troubles become discounted, and next the stocks can be marked up as the continuing economic recovery is discounted in turn. They will benefit from stronger economic growth, improving loan demand, a higher rate of dividend growth, improved Tier 1 capital ratios and improved credit throughout the country. They also will benefit by starting with low valuations. Read seven reasons to buy financial stocks now.

When you add buybacks together with dividends, analysts figure the banks could provide total yields of 5%. Add that together with 12% normalized earnings growth and an increase of price/earnings multiples, and banks could well rise as much as 20% as a group in 2011.

Top financials to consider for the coming year are capital market goliaths such as J.P. Morgan Chase & Co. (JPM) and Morgan Stanley (MS); super-regionals Wells Fargo & Co. (WFC), Zions Bancorp (ZION) and U.S. Bancorp (USB); smaller regionals such as Cullen/Frost Bankers Inc. (CFR), Northern Trust Corp. (NTRS) and insurers/asset managers Lincoln National Corp. (LNC) and Principal Financial Group Inc. (PFG)

Energy and materials

If the global economy does settle into an easygoing trot led by the United States and a recovering Europe, then a lot of the energy and materials stocks that were butchered in the past few years finally are going to have a revival of earnings growth. These companies have a lot of operating leverage, which means that just a little more revenue can bring big gains in earnings.

During periods when manufacturing indexes are well above the neutral line, energy tends to be one of the strongest cyclical performers anyway.

The price of crude appears to be ready to pop higher, and it won't take much of a nudge to push the barrel toward $100 by midyear in the event that demand remains stable. Read a 10-step inflation survival guide on InvestorPlace.

Top-rated positions in my book are Occidental Petroleum Corp. (OXY), ConocoPhillips (COP), Apache Corp. (APA), Range Resources Corp. (RRC) and even Exxon Mobil Corp. (XOM), but the real strength should come in oilfield-services providers such as Schlumberger Ltd. (SLB), Atwood Oceanics Inc. (ATW) and smaller oil producers such as Berry Petroleum Co. (BRY) and Northern Oil & Gas Inc. (NOG).

Rebounding from the dead might be the refiners, where top choices are Tesoro Corp. (TSO), Valero Energy Corp. (VLO) and Western Refining Inc. (WNR), as well as bankrupt-exiting petrochemical refiner LyondellBasell Industries NV (LYB).

Jon Markman is currently recommending AAPL and ARMH to his paid newsletter subscribers

Markman is a money manager and investment adviser in Seattle. For more ideas like these, try a two-week trial to Markman's daily investment newsletter, Strategic Advantage , published in partnership with MarketWatch, or his daily trading newsletter, Trader's Advantage. Follow him on Twitter. 

What's new in 2011?

1) Many of the old monarchs and dictators still clinging to power will finally croak, creating massive opportunity and instability.

Just look at how many octogenarians are still in positions of tremendous power and influence, either de facto or de jure:

King Abdullah- Saudi Arabia (86)
Crown Prince Sultan- Saudi Arabia (82)
King Bhumipol- Thailand (83)
Robert Mugabe- Zimbabwe (86)
Fidel Castro- Cuba (84)
Raul Castro- Cuba (79)
Emir Jaber- Kuwait (81)
Pope Benedict XVI (83)
Hosni Mubarak- Egypt (82)
Sultan Abdul Halim Mu'adzam Shah- Malaysia (83)
Manmohan Singh- India (78)
Than Shwe- Burma (77)
Mahmoud Abbas- Palestine (75)

2) Massive property bubble bursts in Thailand.

Because of the relative size of its economy, low prices, significant population, agricultural wealth, and manufacturing base, a lot of western funny money that's been printed has ended up looking for a home in Thailand.

In its efforts to thwart rapid currency appreciation, the Thai central bank has matched its western counterparts in polluting the money supply. It's no wonder that Thailand's stock exchange rang up a 40.6% return in 2010, the 4th best performing index in the world after Peru, Argentina, and Indonesia.

The other place where the money ended up is in the Thai housing market, which is just bursting at the seams with new supply and rising prices fueled by speculators as opposed to demographic fundamentals.

3) Chinese street inflation exceeds real GDP growth

How can you tell when a politician's lying? Watch for his lips moving. This goes doubly in China where inflation and growth statistics in China are massaged vigorously.

The government's efforts to maintain a currency peg have created troubling inflation in the country, and 2011 may be the year when the economic engine runs out of steam.

4) Several major American cities go bankrupt. This has been a long time coming, but it may prove to be the powder keg that sparks the financial mushroom cloud.

5) Julian Assange has an 'accident'. I sincerely hope it won't happen, but I won't be surprised.

6) It becomes illegal to record the police in several US states, Canada, or the UK. You know, we used to be able to rely on the mainstream media to keep governments in check... but these days they're just petty hacks and cheerleaders.

7) (Mike's addtion: Several states including Texas now allow police to take your blood by force should you refuse to submit to a breath-test for suspected DUI. This insane policy was being utilized during New Year's. This infringement on personal freedom is a MAJOR sign that we're a country entering Stage 7 in collapse.Why? Because once the people become the enemy of the state, it's game over. Smells like Germany to me...

8) The pass of an era for KodakChrome - based on the idea of pre-paid processing. 2011 signal the end of life of KodakChrome fans.

VIX - volatility index

What is the VIX?

In short, the VIX is a measure of the stock market’s “pulse.” That is, it gauges investors’ mood, based on options trading among S&P 500 companies.

It’s easy to remember the relationship, as it works in the opposite way to the market. If more investors are buying calls, they’re betting that stocks will rise. As a result, the VIX will head lower amid perceived complacency.

If there’s more put option-buying, it’s a sign that investors expect stocks to fall. This fear will cause the VIX to rise.

Reading the VIX

When it comes to using the VIX’s movements  with your trading decisions, the index has established trading ranges and specific points that you should monitor. When the VIX trades…

~ Above 40 Points: Investors are in panic mode.

~ Above 50 Points: Investors are in all-out selling mode.

~ Higher Than 50 Points: This is a rare occurrence (it’s only happened twice before), but if it happens, back up the truck and buy S&P call options in anticipation of a reversal.

~ Between 20 Points and 30 Points: This is the toughest range to gauge, as the market isn’t giving a clear signal.

~ Under 20 Points: The market is heading into solid bullish territory and investors are feeling really good.

~ Under 15 Points: Investors are feeling too good and complacency has set in.

And we’re close to this  latter range at the moment…

What the VIX is Telling You to Do Right Now

When the VIX drops into this 15-point range, you need to start thinking about being more defensive with your investments.

The problem is, the VIX can trade in these low ranges for weeks, even months. This means you must be counter-intuitive. That is…

• Start making plans to lighten up on positions, or…
• Take measures like selling call options against your positions. This is a very difficult thing to do from a psychological standpoint, since you have to wrestle with your emotions.

Don’t worry, though… because whenever the VIX has fallen below 15 – and especially if it falls into the 10-12 range – it’s always been a good time to sell (even if it sometimes takes a while before being proven right).

The key question to keep in mind is this: Is the next 10% or 20% climb worth the possibility of suffering an even bigger decline on the way down?

Remember, the market tends to fall much faster than it rises and it’s always harder to get out once panic sets in. On the way down, investors invariably pick the worst point to sell because they’re shocked by the speed of the movement.

Don’t fall into that trap, because when the market is falling,  you need to be flush with cash in order to scoop up the bargains.

Here’s what you should do…

When the VIX Falls, Raise Cash

As a general guideline, raise cash at levels that correspond with the VIX.

That means with the VIX under 30 points, your cash levels should start to accumulate, maybe at a rate of 2% for every point lower on the VIX.

However, with the VIX currently around 15-17 points, you should raise cash at a rate of 5% for every point that it drops. If the index falls under 12 points, that number should rise to 10% for every point. If the VIX trades at 10 points or under, your cash position should be at least 50%.

These are guidelines that I’m adopting for my portfolio. While it may seem overly conservative, you only need to look back two years and remember exactly how you felt. By being flush with cash, and also holding a substantial equity position, you may lose a bit of money on the way down, but at least you’ll have powder ready for the huge bargains that invariably pop up during a panic.