Search Google for the words "Portfolio Construction" and you get 187,000 results. That's not a lot by search standards. Do the same for "iPad" and you get 102 million. However, in the game of equities, nothing is more important than how an investment portfolio is put together. Manulife Financial believes 50% of a portfolio should consist of companies in sectors with the best long-term growth prospects. The remaining 50% should be invested in counter-cyclical sectors like real estate, healthcare and consumer staples to help offset those periods when the portfolio's core is in the doldrums. I personally believe it's not that complicated. I'd rather own six great companies in the same sector than six bad ones, each from a different sector. To prove my point, I'll pull together a garden-variety, 10-stock portfolio from the ads in Canadian House and Home Magazine.
IN PICTURES: How To Make Your First $1 Million

Fewer Choices

I gave myself a definite disadvantage choosing a Canadian magazine. Of the 100 or so advertisers, many are naturally Canadian. I'm looking for American-based companies, or at least Canadian companies, trading on the Nasdaq or New York Stock Exchange. In the end, I found 19 suitable candidates. I will now go about the process of whittling the number down to 10. While I don't necessarily agree with Manulife's theory on portfolio construction, I do think it is right about having financial services and healthcare companies in the fold. Therefore, with only one healthcare advertiser in the magazine, I'll go with Schering Plough (Merck) (NYSE: MRK), maker of the Aerius oral antihistamine. As for banks, two are advertising in the magazine - Toronto Dominion Bank (NYSE: TD) and the Bank of Nova Scotia (NYSE: BNS). I'll go with Scotiabank because of its international presence outside Canada and the United States. While not as large as TD, I think its global exposure gives it greater future potential. However, both are good companies. This leaves me with eight more selections.

Consumer Goods Alternatives

Because I'm using a home-related magazine, a large number of the advertisers are consumer goods businesses. Ultimately, one or two will have to go in the portfolio. For now, I'll pick some of the alternatives, regardless of their investment merit. Once the portfolio is assembled, we'll figure out if the 10 make any sense long term. Excluding consumer goods, there are four sectors (industrial goods, basic materials, conglomerates and services) with at least one company represented for a total of seven. I'll take six of them, swapping out paint company Valspar (NYSE: VAL) for the larger and more diversified financial company, Berkshire Hathaway (NYSE: BRK.A), whose Benjamin Moore subsidiary also advertises in the magazine. This leaves one consumer goods company and we're done.

The Last Selection

This is a toss-up between Energizer Holdings (NYSE: ENR) and Procter & Gamble (NYSE: PG). While you can't deny the marketing machine that is P&G, Energizer does almost as good of a job generating cash, and its stock trades at a much more reasonable valuation than its larger competitor. Price-to-earnings, price-to-sales, price-to-cash flow and price-to-book are all lower for the Energizer bunny. It's hard to bet against Tide, but I'm a value guy.

The 10-Stock Magazine Portfolio

Company Sector Company Sector
Berkshire Hathaway (NYSE:BRK.A) Financial 3M (NYSE:MMM) Conglomerates
Best Buy (NYSE:BBY) Services Bank of Nova Scotia (NYSE:BNS) Financial
CRH Plc (NYSE:CRH) Industrial Goods Schering Plough (NYSE:MRK) Healthcare
Scotts Miracle Gro (NYSE:SMG) Basic Materials Petsmart (Nasdaq:PETM) Services
Visa (NYSE:V) Services Energizer Holdings (NYSE:ENR) Consumer Goods

Bottom Line

There you have it. From one magazine, I was able to pull together a 10-stock portfolio representing seven different sectors made up of seven large-cap and three mid-cap stocks. For P&G lovers, you can always swap out one of the three service-sector stocks and replace it with the pride of Cincinnati. Either way, you don't get much more stable than this. (For more stock analysis, take a look at Companies Reaching New Highs.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Will WYNN Continue to Rally?

    Wynn Resorts has experienced a rally recently. Will it remain a good bet?
  2. Stock Analysis

    Don't Be Fooled by the Market's Recent Rally

    The bulls won for a bit in early October, but will bears have the last laugh?
  3. Stock Analysis

    Will Twitter's Stock Find its Wings Soon?

    Twitter is an enigma to many investors, but its story is pretty straightforward.
  4. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  5. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  6. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  7. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  8. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  9. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  10. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!