Create a Rip Van Winkle Portfolio With These Four Stocks

Zacks Investment Research
  SEP 28, 2012 11:45 AM

Agrium, TJX Companies, Madison Square Garden Company, and Chipotle Mexican Grill are companies to consider.


There is a difference between trading in stocks and investing in them, but too often these get confused as being the same thing. Trading is usually done in a short time period, much like the day traders of the dot-com era, whereas investors are supposed to take a longer term view.

The problem is that too many investors think like traders and get sucked into thinking about stocks in the short term.

Warren Buffett, one of the great long-term investors of all time, once said:

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. As far as you are concerned, the stock market does not exist. Ignore it. Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.

Could you buy and hold a stock for five years without checking to see what it is doing? Could you ignore it completely?

Warren Buffett's five-year rule reminds me of the Washington Irving story about Rip Van Winkle. Irving described a man who goes up to the top of a mountain, falls asleep, and awakes 20 years later to find that life has turned upside down.

Rip Van Winkle doesn't recognize anyone. His wife is dead. His small New York town is no longer controlled by the British, but has a new government with George Washington at its helm.

The Rip Van Winkle Strategy

What if you were to pick stocks as if you were Rip Van Winkle? It would be a strategy where an investor buys a company with the belief that he could "wake up" five years later and that investment would still be sound.

I can hear you thinking, "That's impossible to do. Too much can change in those five years."

Sure, Borders is no longer in operation and Best Buy is on the ropes. Neither of those companies would have been good investments in a Rip Van Winkle strategy five years ago.

But there are plenty of other companies that have stood the test of time and are likely to not just survive, but thrive, in the coming years. Four Stocks For a Rip Van Winkle Portfolio

What do these four stocks have in common? They all are businesses with an edge.

1. Agrium (NYSE:AGU)

If Rip Van Winkle could choose a stock to wake up to years later, Agrium would be it. We all have to eat, right?

Agrium produces all three of the major fertilizers as well as micronutrients and plant protection products. It is the largest direct-to-grower retailer in North and South America, selling seeds and irrigation products.

P/E = 10
2012 EPS Growth: 2.6%
2013 EPS Growth: -0.12%
Zacks No. 2 Rank (Buy)

2. The TJX Companies, Inc. (NYSE:TJX)

A retailer might seem a strange choice for an investor who is looking out five years because the sector can be volatile but the TJX Companies has been growing earnings in the double digits for the last three years and has been operating its low priced model since 1956. It operates TJ Maxx, Marshalls, and home furnishing stores like HomeGoods in the United States, Canada, and Europe.

P/E = 18.1
F2013 EPS Growth: 23.9%
F2014 EPS Growth: 11.4%
Zacks No. 2 Rank (Buy)

3. The Madison Square Garden Company (NASDAQ:MSG)

Do you think Madison Square Garden is going anywhere in the next five years? The Madison Square Garden Company also operates other famous venues including Radio City Music Hall, the Forum, and the Chicago Theatre. It also owns the New York Knicks and New York Rangers sports franchises. Additionally, the company manages a media division, which consists of Web, digital, and television networks.

Owning a piece of the Garden isn't cheap, however.

P/E = 31
F2012 EPS Growth: -4%
F2013 EPS Growth: 24.7%
Zacks Rank No. 3 (Hold)

4. Chipotle Mexican Grill, Inc. (NYSE:CMG)

Chipotle is in the midst of worldwide expansion. It currently operates Mexican casual dining restaurants in the United States, Canada, Great Britain, and France. In five years, its expansion is likely to continue.

Chipotle is an aggressive growth stock with a big P/E, but with large double digit growth projections to match.

P/E = 37
2012 EPS Growth: 33.3%
2013 EPS Growth: 21.2%
Zacks No. 3 Rank (Hold)

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No positions in stocks mentioned.