If you wanted an instant diversified portfolio with exposure to resources, energy, retail, insurance and telecommunications, I have possibly the greatest selection for you.
All five stocks have very high returns on equity (ROE) – over 20% in the last 12 months – and have 4 out of 5 have generated double-digit earnings per share growth over the past decade. The fifth is no slouch either, generating an average 8% EPS growth over the same period.
Should they be able to replicate that performance over the next ten years, their share prices will follow and will likely be much higher in 2024.
Not only that, but I've selected five companies with billion dollar market caps that should be able to survive through thick and thin. In fact, a number are in so-called defensive sectors, which should give you protection in case of an economic downturn in Australia.
BHP Billiton (ASX: BHP)
Iron ore, copper, petroleum, gas, potash, nickel, manganese and uranium are just some of the commodities this resources giant produces. While prices may fluctuate, it's unlikely that the world will suddenly decide it doesn't need any one of those commodities. With a ROE of 21.5% in the last twelve months, and compound earnings per share growth of 22% over the past decade, BHP is a worthy stock for this portfolio.
Caltex Australia (ASX: CTX)
An odd choice you may think. But Caltex has generated a ROE of 22.2% in the past year, and earnings per share growth of 10% in the last ten years. No longer predominantly an oil refiner, Caltex is moving into higher margin and more stable retailing (or marketing as the company calls it) of various petroleum products, and not just to consumers, but businesses and government too.
Woolworths Limited (ASX: WOW)
The supermarket retailer extraordinaire is currently expanding into hardware to add to its liquor, discount variety, petrol stations, supermarkets and hotels businesses. As a result the company generated a ROE of over 25% last year and a 12% compound growth in earnings per share over the past decade. Can you afford NOT to have this stock in your portfolio?
Insurance Australia Group (ASX: IAG)
Insurance Australia Group has turned around its disastrous expansion into the UK, and has grown earnings per share at a compound 8% over the past 10 years and generated a return on equity of 20% last year. Add in a P/E ratio in the low teens, and a fully franked dividend yield of over 7%, and IAG makes a worthy addition to the portfolio.
TPG Telecom Limited (ASX: TPM)
One of Australia's largest telecommunications companies, TPG Telecom has seen compound earnings growth of an astonishing 21% over the past ten years. No wonder its share price is up over 537% since 2004 including dividends. ROE over the past year was a mighty 22.8%, and unlike many of its peers, TPG has taken on debt sparingly, although its recent acquisition of AAPT's Australian business was made with debt. However, the acquisition appears to be a good one, and TPG is likely to pay down its debt as fast as possible.
Foolish takeaway
Foolish investors could do worse than to add these five stocks to their core portfolio.
