Like you, I love a winner.
For 364 days of the year, my focus is on picking stock market winners.
The exception is Melbourne Cup day, and seeing as horseflesh is not my area of expertise, I happily bring in the experts.
Thankfully, my punting mate Lewy did not disappoint, with Protectionist, one of his top three tips for the race, romping home at the juicy odds of $8.
Coupled with his best bet on Derby Day saluting the judge, it looks like Fool Form might have taken one giant step closer to becoming our next advisory service. Giddy up.
As in racing, when it comes to investing, picking the winner is one thing, but avoiding the losers is just as important — just ask any investor in iron ore, gold or in more recent times, oil stocks how their portfolio has been travelling over the past few months.
BHP Billiton (ASX: BHP) apart, I've totally avoided iron ore stocks.
In the past, I admit to having been mildly interested in junior gold producer Beadell Resources Ltd (ASX: BDR), but thankfully steered clear — its shares are down a whopping 73% over the past 12 months.
As for oil stocks, I admit I've been burnt. The oil price is down close to 30% since July, dragging the good, the bad and the ugly down with it. My holding in Buru Energy Limited (ASX: BRU), once up close to 50%, is now down around 50%.
Thank goodness for a diversified portfolio. Thank goodness for position-sizing, my Buru holding being only a very small part of my overall portfolio to start with — even smaller now. And thank goodness for not putting all my eggs into one sector's basket — it's often the case of one down, all down, especially when investing in the commodities sector.
That said, the time to buy commodity stocks is when there is blood in the streets. When stocks have been hammered. When production is being cut. When companies are laying off staff, and/or calling in the receivers.
We're not there yet in the oil sector, but it is time to dust off a bit of a watchlist…
And we're definitely not there in the iron ore sector either, where in the face of a sharply lower price for the red dirt, BHP Billiton and Rio Tinto Limited (ASX: RIO) have publicly committed to further increase production.
In any other industry — think airlines, specifically the recent domestic price wars between Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings (ASX: VAH) — it would be commercial suicide.
In the case of iron ore, given their size, it won't be suicide for BHP and Rio, but it could get even more painful for the higher cost producers like Mount Gibson Iron Limited (ASX:MGX) and Atlas Iron Limited (ASX:AGO).
For the last year I've patiently held off adding to my position in BHP Billiton, a decision fully vindicated given the stock's 11% fall over the past 12 months.
But if and when the red dirt of the Pilbara turns to red blood in Bridge and Collins Streets, I'll be ready to pounce.
My top-up target for BHP is $30, at which price the shares would trade on a juicy fully franked dividend yield of around 4.2%
Who'd have thought? Capital intensive BHP Billiton a dividend stock? Heck, at $30 it would be out-yielding safe and stable Woolworths Limited (ASX: WOW).
Speaking of the "fresh food people," since their disappointing trading update on Monday, they've been doing a pretty good impersonation of an oil stock — Woolworths shares are down 5.5% this week, a large chunk of change for a blue chip ASX stock.
It just goes to show that not all dividend stocks are created equal.
It also goes to show that yesterday's Millionaire Maker dividend stocks are less likely to do it for you in the future.
To find tomorrow's big winners, your stock picking will need to be a little more adventurous than sticking with plain old Woolworths, Commonwealth Bank of Australia (ASX: CBA) or even Insurance Australia Group (ASX: IAG). And for the record, the Medibank Private IPO is unlikely to do it for you either… I'll share our thoughts on that hugely popular float in the coming days.
I'm talking about stocks like Ainsworth Game Technology Limited (ASX: AGI). It recently boosted its dividend by 25%, and now yields a very respectable 3.3%. With a dividend growth rate like that, it won't take long for Ainsworth's yield to pass that of Woolworths.
The moral of the story?
When looking for dividend-paying stocks, don't over-look growth stocks. Their starting yield may be low today, but give them a few years of double digit earnings growth, and they'll give you capital growth and a decent dividend yield.
