A Portfolio With 21 Gainers and 0 Losers

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As of Friday's close, the real-money Inflation-Protected Income Growth portfolio had reached something of a remarkable milestone: All 21 selected stocks were showing gains since their date of purchase. That achievement looks all the more remarkable when you realize that just last week, one pick was showing a loss of roughly 2.3%.

Is this a fluke of a rapidly rising market or proof of a well-thought-out investing strategy? Perhaps it's a bit of both.

The iPIG portfolio is built around the fairly defensive investing principles of dividends, balance sheet strength, valuation, and diversification. The one-two combination of those qualities and a rapidly rising market has helped the portfolio attain the status of having no losers. While that achievement may well turn out to be fleeting, it's still valuable to consider what's behind it in an attempt to figure out how to keep that sort of track record alive.


When bad news is good enough
It's earnings season again, and just like in every other earnings season, not every company meets Wall Street's expectations. To a real-world investor, though, what really matters isn't whether a company met Wall Street's quarterly expectations as much as whether the company is on track for long-term objectives. This quarter was no different for many of the picks in the iPIG portfolio.

Kinder Morgan , the pipeline giant that was showing that 2.3% loss just a week ago, had been punished for not meeting expectations for the third quarter. Still, Kinder Morgan's story now is one of aggressive expansion, with a proclaimed $13 billion in opportunities. As Wall Street digests the short-term pain of an earnings miss and starts looking toward the future cash-flow-generating prospects of Kinder Morgan's expansion plan, chances are reasonable that the stock can continue to recover.

Speaking of missing expectations, safety equipment manufacturer Mine Safety Appliances was the iPIG portfolio's largest loser on the week, down nearly 11% on some poor earnings numbers. Mine Safety Appliances blamed the results on weak global mining conditions, sequester-related delays in new product certifications, and a reduction in large order shipments. 

While some of those decreases could be considered one-time effects, much of the drop looks like it could be part of inherent cyclicality in the mining and construction industries that Mine Safety Appliances supports. Still, when originally selected, Mine Safety Appliances was trading at a market cap of about $1.5 billion versus a $1.7 billion fair-value estimate. Even after this past week's drop, Mine Safety Appliances is trading above that $1.5 billion dollar level, showcasing the importance of looking for reasonable prices.

Likewise, while semiconductor giant Texas Instruments reported earnings that were largely in line with expectations, the market did get spooked by its downbeat forecast. That led Texas Instruments to rank among the iPIG portfolio's losers for the week.

Still, a big chunk of that downbeat forecast is driven by the aftereffects of Texas Instruments' previously announced winding-down of its wireless business. That plan was well known at the time Texas Instruments became an iPIG selection, and as a result its impact shouldn't really have been much of a surprise. Indeed, despite a bad week, Texas Instruments is up nearly 25% since it was purchased for this portfolio, because the remaining business is still solid and growing.

And good news is awesome
On the flip side, toy maker Hasbro reported surprisingly strong earnings on better-than-expected overseas sales. That, combined with optimism for the all-important holiday quarter, catapulted Hasbro's stock upward by more than 10% on the week. Since being selected for the iPIG portfolio, Hasbro has been a strong performer, but the true test will be how the company captures sales during this shopping season.

Regardless of how any week goes -- even a week full of earnings news -- what matters to investors is a company's ability to improve its business over time. An improving business, combined with stronger direct rewards to shareholders in the form of increasing dividends, provides the type of long-term rewards that the iPIG portfolio is looking to receive.

Sitting on 21 gainers and zero losers could be an artifact of the rapidly rising market, as the iPIG portfolio was launched last December. Or it could be the result of a carefully selected group of stocks picked specifically for their track records of providing those increasing returns to their owners. As the iPIG portfolio's manager, I'll be the first to admit that there's likely some of each factor at play, but I'll still gladly pocket the dividends the companies are generating as a result of their solid operations.

Looking across the iPIG portfolio reveals the types of companies that can be found when searching for investments that directly reward their owners as the companies succeed. The snapshot table below shows those companies as of Friday's close and their potentially temporary state of 21 gainers and no losers:

Company Name

Purchase Date

Total Investment (including commissions)

Value
as of Oct. 25, 2013

Yield
as of Oct. 25, 2013

United Technologies

Dec. 10, 2012

$1,464.82

$1,935.36

2.19%

Teva Pharmaceutical

Dec. 12, 2012

$1,519.40

$1,584.60

2.88%

J. M. Smucker

Dec. 13, 2012

$1,483.45

$1,876.12

2.10%

Genuine Parts

Dec. 21, 2012

$1,476.47

$1,819.07

2.72%

Mine Safety Appliances

Dec. 21, 2012

$1,504.96

$1,727.64

2.50%

Microsoft

Dec. 26, 2012

$1,499.15

$1,965.15

3.13%

Hasbro

Dec. 28, 2012

$1,520.60

$2,238.15

3.07%

NV Energy

Dec. 31, 2012

$1,504.72

$1,997.52

3.20%

United Parcel Service

Jan. 2, 2013

$1,524.00

$1,912.20

2.59%

Walgreen

Jan. 4, 2013

$1,501.80

$2,367.60

2.13%

Texas Instruments

Jan. 7, 2013

$1,515.70

$1,890.81

2.98%

Union Pacific

Jan. 22, 2013

$805.42

$914.16

2.07%

CSX

Jan. 22, 2013

$712.50

$904.74

2.25%

McDonald's

Jan. 24, 2013

$1,499.64

$1,516.48

3.42%

Becton, Dickinson

Jan. 31, 2013

$1,518.64

$1,899.90

1.88%

Aflac

Feb. 5, 2013

$1,466.35

$1,790.10

2.11%

Air Products & Chemicals

Feb. 11, 2013

$1,510.99

$1,899.41

2.54%

Raytheon

Feb. 22, 2013

$1,473.91

$2,158.92

2.75%

Emerson Electric

April 3, 2013

$1,548.12

$1,882.16

2.44%

Wells Fargo 

May 30, 2013

$1,525.48

$1,585.82

2.80%

Kinder Morgan

June 21, 2013

$1,518.37

$1,532.58

4.49%

Cash

  

$514.85

 

  

 

Data from the iPIG portfolio brokerage account, as of Oct. 25, 2013.

To follow the iPIG portfolio as buy and sell decisions are made, watch Chuck's article feed by clicking here. To join The Motley Fool's free discussion board dedicated to the iPIG portfolio, simply click here.

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The article A Portfolio With 21 Gainers and 0 Losers originally appeared on Fool.com.

Chuck Saletta owns shares of Aflac, Texas Instruments, Microsoft, McDonald's, Genuine Parts Company, Raytheon Company, United Technologies, Wells Fargo, Teva Pharmaceutical Industries, Emerson Electric, Becton Dickinson, Walgreen Company, Union Pacific, Hasbro, United Parcel Service, CSX, J.M. Smucker, Air Products & Chemicals, Mine Safety Appliances, Kinder Morgan, and NV Energy. The Motley Fool recommends Aflac, Becton Dickinson, Emerson Electric, Hasbro, Kinder Morgan, McDonald's, Mine Safety Appliances, United Parcel Service, and Wells Fargo. The Motley Fool owns shares of CSX, Hasbro, Kinder Morgan, McDonald's, Microsoft, Raytheon Company, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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