As the year draws to a close, its a good time to reflect on what you want out of your portfolio.
Today I want you to revisit two stocks. One of these stocks has been an excellent candidate for a retirement portfolio, until now.
BP: a risky play
With a dividend yield of over 6%, its been hard not to warm to BP (LSE: BP) (NYSE: BP.US) over the years. Over the past four or five years, though, weve watched the mighty BP shrink before our very eyes. Since 2010 BP has sold $43 billion in assets, including refineries and pipelines. According to one analyst at Oppenheimer & Co., the oil producer needs to sell another $10 billion worth of assets by 2016. This will become more and more difficult if the oil price continues to slide.
BP is also cutting staff, including back-office workers, which will cost the company another $1 billion in restructuring charges in coming years.
But wait, theres more
Since June the oil price has fallen 45%; and the companys failed 2012 investment in Russias Rosneft is costing BP dearly.
The whole point of BP going into the metaphorical fetal position is that it protects the oil producer from further blows to its bottom line. Thats become all-the-more-important for BP as the bear market for oil looks for a place to rest. Is it good news for investors, though?
National Grid: steady as she goes
The very basic fundamentals of National Grid are compelling. The utility companys earnings per share is around 66.4. It has an EPS growth rate of 6%. In addition, National Grid has a net profit margin of nearly 15%, a return on equity of over 15%, and a price to earnings ratio of 13.
From a management accountants perspective, this company makes sense as a long-term investment.
The big trade-off
BP gives you exposure to the potentially lucrative oil market, while National Grid is front and centre when it come to the demand for electricity.
So which stock is it? The stock thats now cheaper from a valuation point of view (albeit a lot more risky than it was 12 months ago), or the stock thats steady as she goes but wont offer you as attractive a yield?
Lets just be clear about that yield. At this point in time, National Grids offering a dividend yield of 4.78%. That compares to BPs 6.07% yield.
Its a tough call but, in todays market, this Fool prefers the steadiness of National Grids income. This Fool believes commodities prices could be very unpredictable in coming months (potentially years) and that, rather than investing in a resources company, a better alternative might be a utilities company instead.
Utilities havent in the past offered the same sorts of returns as resources companies, but in the medium term I think Utilities companies will offer better value for money. My view, too, is that National Grid is the pick of the bunch in the utilities space a better investment than Centrica.
Given BPs reduced size, and the possibility that the oil price will pick up again, it is possible the company may become a takeover target in the near future. If that is the case, its definitely worth holding onto its shares. It is, however, another risky play. If youre the kind of investor that likes to take it day by day, BP is most certainly an option for you. For those that prefer a good nights sleep, I like National Grid.
You won’t be surprised to know that National Grid is not the only stock that can set you up for retirement. There are others too. The key to long term investing though is to get onto these stocks as soon as possible. If you don’t, you won’t have accumulated many shares at all by the time you get to retirement — and that won’t do you much good!
That’s why I implore you to click on this report called The Fool’s Five Shares To Retire On. It couldn’t be simpler or easier — the Fools have listed 5 stocks that a worthy of a retirement portfolio and we’ve even explained why we’ve picked them. Click here for your copy. It’s 100% FREE and there’s no obligation to do anything further.
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