Stock Market Investing in a Market About to Turn; What Kind of Stocks Should You Look at?

Stock Market InvestingStock market investing is always a precarious endeavor. Investment risk with equities is consistently high on a short- to medium-term basis; even more so today because the market has already gone up.

Putting together an equity market portfolio with prices at their highs is difficult. Valuations are full and global economic growth is slowing. But for a lot of investors, their money has to go somewhere, because cash (while useful to have) can’t generally beat the rate of inflation.

There is absolutely no rush for new money to be jumping into equities. Picking stocks should be planned and deliberate, with patience being essential for investors. Building a solid portfolio takes time; it doesn’t need to be done all at once.

Stock Market Investing: Building the Foundations

Some investors do very well with managed money and/or mutual funds. For those who like to build their own portfolios over time, individual stock selection and portfolio weightings are the key to outperformance over time.

Only a few years ago, buying the index was a stock market investing strategy. An investor didn’t necessarily have to pick stocks in the great monetary experiment.

But, it would seem that easy money has been made and I think it’s reasonable to say you can’t count on much more in the way of tailwinds from the broader market. Investment risk is now of primary concern.

In building an investment-grade portfolio, the kind of stocks for long-term investment, either for a child’s education or income while in retirement, foundation stocks or benchmark stocks are absolutely essential.

These are the kind of positions a portfolio can build over time. Not surprisingly, they can be dividend-paying blue-chips and very often have lower investment risk than faster growing businesses.

But as has been well proven in the last six years, dividend-paying stocks are no slouches in terms of total return offered. Those dividends add up. If the income isn’t required, dividend reinvestment is an excellent way to build wealth over time, often at less risk.

A Top Stock to Outperform the Rest of This Decade

An example of a company that makes for an excellent foundation stock in a long-term equity portfolio is The Walt Disney Company (NYSE/DIS). It’s a business we’ve covered many times in these pages. (See “Four Top Stock Groups for Your Investment Portfolio in 2015.”)

Disney is the kind of stock in which a longer-term investor can build a position over time, taking advantage of broader market corrections.

With television networks, film studios, theme parks, and cruise ships, Disney is not just a well-known franchise—it’s a very good moneymaker for shareholders.

In its most recent quarter ended March 28, 2015, the company’s sales improved nicely to $12.5 billion from $11.7 billion in the same quarter last year.

Disney’s parks, resorts and consumer products divisions continued their previous quarterly growth trends. Notable in its recent quarter was the low double-digit revenue growth in its media networks. This division has been flat for a number of quarters. Diluted earnings per share improved 14% comparatively.

Choose Recession-Resistant Stocks for Your Portfolio

We’re seeing that the stock market has been pulling back lately due to global growth concerns. So this is the kind of environment we have to deal with right now; in this case, if an investor wants to buy stocks in the current environment, only the best recession-resistant businesses will do.

As you can see with my Disney example, foundation or benchmark stocks can anchor a stock market portfolio, being more recession-resistant types of businesses that still make money when times are slow.