One of my favorite things as an investment analyst is to try to find companies that perform well but consistently so. I’m talking about businesses that aren’t going away and are recession-resistant, at least to the best extent possible.
I think an equity market portfolio really should be a mix of different companies in different industries that also comprises businesses of different sizes at different stages of maturity.
I have a strong affinity for dividend paying stocks, but an equity market portfolio need not be all blue chips. I’m also a fan of index funds, and it’s quite evident that the vast majority of portfolio managers have a very difficult time beating the major indices over long periods.
Having watched so many blue chips trade so similarly over time, it’s clear that they don’t do much until they do. It may just be that no one can consistently anticipate the short-lived, but substantial capital gains that can occur (like this year) as market cycles change. The opportunity cost of not being in the equity market in its strongest years has proven to be substantial.
Stocks are inherently risky securities, but a reasonably stable business that consistently grows its revenues and earnings is absolutely golden in an equity market portfolio, even if it isn’t the fastest-growing enterprise out there.
One company that I really like and that has been an open position since August of 2011 is DENTSPLY International Inc. (NASDAQ/XRAY). The company’s 10-year stock chart is featured below:
Chart courtesy of www.StockCharts.com
The only people I know who like going to the dentist are dental equipment salespeople and stock brokers. DENTSPLY is a very well-managed business that I would say falls under the category of recession-resistant and is welcome in a long-term equity market portfolio.
This Pennsylvania-based company has been around a long time. It manufactures and sells a wide range of dental products. The company actually is a global supplier with a presence in more than 120 countries.
Sales in the third quarter of 2013 grew a modest 1.2% to $704 million. But earnings were another record, coming in at $79.9 million, or $0.55 per diluted share, compared to $53.4 million, or $0.37 per diluted share, in the third quarter of 2012. The company pays a small dividend and is often making international acquisitions.
In an equity market portfolio, positions like DENTSPLY can really help keep capital gains when sentiment changes. The one thing you’re not going to get with this kind of company is runaway capital appreciation, that is, unless it was subject to a takeover.
But I do like mixing things up in a long-term equity market portfolio, and I really like consistency, both in terms of operational performance and investment return. (See “Why These Numbers Are Really What Matters in the Stock Market Right Now.”) I’m not talking about trading here; I’m talking about investing without having to worry about checking your positions every day or every week.
There are plenty of mature, recession-resistant businesses like DENTSPLY in the equity market. As is typically the case, they are often trading right near their highs.