My No. 1 Top Holding

So, what's your No. 1 top holding? When I tell you mine, you may be surprised.

For one thing, it's no small cap. It's no story stock, either. It's a household name that's been all over the news.  

And this should surprise you why?
Because I've banged the table on small caps for years -- about how you could buy ExxonMobil (NYSE: XOM  ) orGeneral Electric (NYSE: GE  ) now that they're multi-hundred-billion-dollar monsters. The real money, however, was made when they were smaller.

And that's just partly because their explosive growth was still ahead. These stocks -- and others, from high-tech Motorola (NYSE: MOT  ) to pharmacy chain Walgreen (NYSE: WAG  ) -- were killer investments in the day for another reason. They weren't so widely followed on Wall Street yet.

As a result, demand was scarce, and the "auction" market on the floor was inefficient. Second only to their potential to ramp their revenues exponentially, this inefficient pricing explains why smaller-company stocks have historically outperformed all others.

Confessions of a small-cap junkie
That's why I rarely dabble in big names anymore. But I do make exceptions, particularly when markets get out of whack. That's how I got tangled up with my No. 1 top holding: I plucked it from a group that was priced for bankruptcy.

I never even considered that the company would set the world on fire -- only that the stock was a value. Plus, it was a big name I wanted to own, but never expected to get a chance to buy cheap. And that brings me to the reason I decided to write this column.

I think we have a similar opportunity right now. This dawned on me when I noticed many of my dream stocks popping up alongside the usual "cigar butts" on many old-timers' lists of top value stocks -- most notably my old pal Philip Durell's Inside Value scorecard.

An "inverted Nifty Fifty"?
Sadly, I can't take credit for that great phrase. I stole it from fund skipper Christopher Davis, who coined it to explain how America's top companies are suddenly among the market's cheapest stocks. According to Davis, "We get this opportunity once every 10 or so years."

I'd say less often than that. There are exceptions, of course. In 1990,Citigroup (NYSE: C  ) got so cheap you had to buy -- but frankly, the entire banking sector had issues. (Sound familiar?). Same with my No. 1 top holding. But I don't recall seeing anything like this.

Earlier, I mentioned Philip Durell's Inside Value scorecard. In place of the usual has-beens and out-of-favor industries, it reads like a who's-who of America's top brands and companies. And it's no surprise they're starting to move.

Rescue your retirement
Last year, I rolled over an old 401(k) from a past job. I considered dumping it in an index fund, but I had a better idea. I boughtAnheuser-Busch and Pfizer (NYSE: PFE  ) , among a handful of other marquee names from Philip's Inside Value scorecard. I've never slept better.

Remember, I needed stocks I could buy and forget, preferably ones that paid dividends. Philip simply tells me which companies were the best to buy now (remember, I'm basically a small-cap guy). Oh, and I also re-upped on beaten-down Bank of America (NYSE: BAC  ) , with its still-generous yield ... you guessed it, my No. 1 top holding.

If you've ever wanted to buy America's top companies, the "inverted Nifty Fifty" is our chance. But if the last few months taught us anything, it's that we'd better be selective. I think Philip can help. Plus, you can try his complete Inside Value service. If you don't like it, don't pay.

Even Warren Buffett would be proud. He'd also tell you that market anomalies and massive opportunities like this can't last. To get Philip's top two picks for new money right now and to find out more about this no-risk free trial opportunity, click here.

This article was first published March 29, 2007. It has been updated.

Paul Elliott owns Bank of America, Anheuser-Busch, Pfizer, and a handful of Philip Durell's Inside Value recommendations. Bank of America and Pfizer are Income Investor selections. Pfizer is an Inside Value pick. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 18, 2008, at 11:20 AM, griderX wrote:

    How safe would you consider BAC's current dividend?

    Do you think the dividend will be reduced due to the merger? In addition, since the price of MER stock hasn't really gone up to reflect the merger price...could it be in jeapordy?

    Digesting a $50 billion dollar company will not be easy...BAC could have a rough to years sorting things out.

  • Report this Comment On September 24, 2008, at 3:51 AM, DemonDoug wrote:

    Wow. If there was ever a stock that you could "buy and forget," BAC would NOT be the one! I could give you a list of 20, 30, or even 40, but holy rusted metal batman, buying and forgetting about BAC is like buying a porsche and leaving the windows down and doors unlocked in the middle of the ghetto, and then just "forgetting" it... yikes. KO and BUD are great investments.

    BAC is the definition of a value trap and is quite possibly the most speculative and risk stock of all financials out there, wowzers.

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