Last week, I introduced readers to four different companies I was considering putting my Roth IRA money into. Today, I'm going to reveal which company I've picked, and why I'm picking it.
But first, I wanted to reflect on how my Roth picks have performed thus far. I started calling out one stock per month last August. Since then, my picks are slightly in the red and underperforming the S&P 500 by about 3.5 percentage points.
On one hand, I think it's too early to draw any conclusions about the performance of my picks thus far; long-term investors need to assume a time horizon of at least three years. On the other hand, after further inspection of my picks, I see that I've favored small, high-risk, high-reward companies.
There's nothing wrong with such an approach, as long as it's done intentionally. But in my case, I'd like to see a little more stability. Take a look at how I would generally classify my picks thus far and you'll see what I mean. Click on the individual company names to view my original write-up.
|
Small Cap, Somewhat Higher Risk |
Large Cap, Somewhat Lower Risk |
|---|---|
| Zipcar | National Oilwell Varco |
| MAKO Surgical | |
| Deckers Outdoor | |
| IPG Photonics | |
| Energy Solutions | |
| Lumber Liquidators |
And so it is with this in mind that I evaluated the four companies I was considered purchasing this month: National Oilwell Varco (NYSE: NOV), Heckmann (NYSE: HEK), Apple (Nasdaq: AAPL), and IPG Photonics (Nasdaq: IPGP)
Before whittling it down, let's get one thing clear!
The three companies I'm going to eliminate are not unworthy of your investment dollars. As a matter of fact, I own shares of all four, and have maintained bullish CAPScalls on them in my All-Star Portfolio. Rather, I just want to guide you through how I went about making my decision of where to invest, based on the current makeup of my Roth IRA.
Given my parameters, both IPG Photonics and Heckmann were eliminated. I still think IPG is a screaming buy at today's prices and that its lasers are set to become an industry standard. But the company has a market cap of just over $2 billion, and there's always a chance that its fiber-optic lasers could be out-innovated -- the same way IPG's lasers are now taking market share from standard carbon-based lasers. That said, when all of my family's positions are included, IPG Photonics still represents 4.4% of our holdings.
And if IPG is small, then Heckmann is tiny. The water-solutions specialist with a focus on the energy industry has a market cap of just $500 million. Though it's a first mover in its niche, there's no guarantee that it will become the one-stop shop for energy companies as it envisions; it's simply too early in the game to tell for sure. Of course, I still think the odds are in the company's favor -- which is why it represents 1.2% of my family's overall holdings -- but I recognize that I'm looking for something steadier for my portfolio this month.
An apple a day keeps the doctor...
That leaves me with Apple and National Oilwell Varco. There's no doubt in my mind that Apple is the premier company of our generation; it has fundamentally changed the way we interact with technology, and with each other.
That said, the market is a forward-looking tool. I don't deny the unbelievable opportunity that exists in emerging markets for Apple, nor the ridiculously cheap price that it is trading for right now. As it stands, I'm a big believer in Apple, as it represents almost 9% of my family's total portfolio.
But when I look 10 years into the future, it's much easier for me to see National Oilwell Varco continuing to dominate than it is Apple. There's certainly a good chance that Apple will continue to rule, but in the field of technology, things can change fast. The company could have a product that flops, be usurped by the competition, or simply start resting on its laurels after the departure of Steve Jobs.
National Oilwell's future -- from my perspective -- is much easier to forecast. The company is a one-stop shop for virtually anything an energy extractor could need. As fellow Fool Aimee Duffy recently pointed out: "Ninety percent of the world's rigs have National Oilwell Varco equipment on them; if that's not market dominance, I don't know what is."
Because oil companies have more incentive to dig up the black gold when prices are high, National Oilwell's stock price has very closely mimicked the price of a barrel of oil over the past six years.
WTI Crude Oil Spot Price data by YCharts
With a rising global middle class, I don't see the price of oil going into a permanent free fall over the next 10 years. That means that National Oilwell's services should still very much be in demand, and that's why I'm adding the company -- for a second time -- to my Roth IRA portfolio.
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