Well Fools, the time has come. Here is the final installment to help us realize our destiny with diversity. So far, I've come up with 12 solid companies in my quest, companies that do things we are all probably familiar with in some capacity. In that light, here are three final stocks for a well-diversified portfolio.
Large-cap
Can anyone really dispute the utter dominance that Google (Nasdaq: GOOG) has over the world of search? If so I would love to hear it. For as much as Microsoft (Nasdaq: MSFT) and Yahoo! try, Google still holds 70% of the global online search market, and that is going to be tough hurdle to overcome as they continue to inundate the world with their plethora of offerings.
One of its more recent products is its Android operating system for mobile smartphones which, incidentally, has just overtaken Research in Motion as the most popular operating system on U.S. smartphones. Android now accounts for 33% of all smartphones purchased versus RIM's 28% and Apple's 22%. This goes to show the innovation Google possesses, and with a balance sheet stocked with more than $30 billion in cash, I would say that the company pretty much controls their own destiny at this point. While tough to value, the fact is that Google is a free cash flow machine, and trading at about 17 times free cash flow isn't a ridiculous valuation for a company with this kind of presence.
Looking for information on their latest project? I'm certain you can just Google it.
Mid-cap
Whether your car is new or old, LKQ Corporation (Nasdaq: LKQX) more than likely has a part for you. As the largest nationwide provider of aftermarket, recycled and refurbished auto parts, LKQ serves collision shops, service shops and car dealers by the tens of thousands.
Auto insurance and the principle of indemnity are big drivers for a company like LKQ. Ultimately, when cars are wrecked, insurance companies work with shops to get parts from companies like LKQ to repair them. Insurance companies aren't going to pay to put new parts on an old car. So LKQ supplies cheaper used parts, the cars get fixed, and everyone's happy ... more or less. While the company has grown primarily via acquisition over the past several years, it seems to be paying off as they continue to expand their presence. Although I would prefer to see a little less debt on the balance sheet, LKQ is able to generate the free cash flow to keep things going. Trading at an EV/EBITDA of about 10, LKQ is ready to be a part of this portfolio.
Small-cap
Looking down on the world from high above, DigitalGlobe (NYSE: DGI) is one of the major players in the nascent satellite imagery space. Founded by scientists back in 1993 as WorldView Imaging Corporation, today DigitalGlobe has a constellation of three satellites in constant orbit (with a fourth slated for launch in 2014) taking pictures and images of just about anything and everything on the face of the earth.
While the majority of its revenue has historically come from national defense and intelligence, the company continues to focus on commercial revenue sources as well. Just recently, it extended agreements with both Google and Microsoft to supply imagery for Google Maps and Bing Maps. Of course government deals don't hurt the cause, and DigitalGlobe just inked a 10-year deal with the National Geospatial Intelligence Agency worth about $3.5 billion. The stock doesn't look super cheap trading at 44 times trailing earnings, but this is a growth story. The company operates in a virtual duopoly with competitor GeoEye (Nasdaq: GEOY), so unless the companies get into a futile price war, this highly scalable business stands to do well as long as the world keeps spinning 'round.
Going forward
After coming up with these and a dozen other stocks, I'll enjoy keeping up with this 15-stock portfolio and seeing how it measures up against the S&P 500 over time. Look for me to check in from time to time to share some results and thoughts. If nothing else, I've had an excellent time learning a lot more about a lot of companies. But I do believe that here we have 15 companies that will help us realize the merits of a well-diversified portfolio.
Past installments:
