Tired of Losing: The Conservative Portfolio Comes Back Into Vogue

It's time to get back to the basics of investing. A lot of intellectual capital is being expended parsing the details of the market collapse and attempting to gauge near-term market direction. That energy might be better applied to fundamental analysis of individual companies, looking for undervalued stocks that have a wide margin of safety.

In the last couple of years, many investors have played Wall Street as if it were Las Vegas or Atlantic City. Investors gambled on, rather than invested in, companies with few assets and little revenue to back up the hype. It's time to recognize that careful, meticulous research, with an emphasis on value and safety, best serves the interest of most investors.

A Conservative Portfolio

It is well accepted that investing in stocks is an asymmetrical psychological proposition. The pain of losing far outweighs the satisfaction of winning. I've received emails from a number of readers who have either dropped out of the market or are considering doing so.

Related Stories

Delta Investors Should Expect a Long, Bumpy Ride

Northwest Airlines Joins Delta in Issuing Profit Warning

Retiree Asks: Is My Portfolio Too Conservative?

I designed the portfolio below just for those frustrated investors. Out of the universe of stocks I follow, I have selected my seven most conservative stocks, each from a different sector, for the investor who is tired of losing and wants to concentrate on equities with value and safety.

A caveat is in order. I know of no investment that is completely safe. Yes, U.S. government debt, held to maturity, is not subject to repayment risk, but it is subject to other risks, such as inflation risk or marginal tax rate risk. The portfolio below is not intended to eliminate risk, only to minimize risk in relation to an ample potential reward.

Conservative Portfolio
Stock	Industry	Price	One- to two-year target
Office Depot(ODP Quote - Cramer on ODP - Stock Picks)	Retail	$8.65	$18.00
Hasbro(HAS Quote - Cramer on HAS - Stock Picks)	Toys	$12.50	$20.00
Raytheon	Defense	$28.66	$40.00
TRW(TRW Quote - Cramer on TRW - Stock Picks)	Auto/Tech	$34.50	$58.00
Safeco(SAFC Quote - Cramer on SAFC - Stock Picks)	Insurance	$26.65	$40.00
Centennial Bank(CEBC Quote - Cramer on CEBC - Stock Picks)	Banking	$7.75	$11.25
Delta Airlines(DAL Quote - Cramer on DAL - Stock Picks)	Airlines	$39.50	$55.00
Source: Alsin Capital Management

Of the stocks in my conservative portfolio, the first four -- Office Depot (ODP Quote - Cramer on ODP - Stock Picks), Hasbro (HAS Quote - Cramer on HAS - Stock Picks), Raytheon , and TRW (TRW Quote - Cramer on TRW - Stock Picks) are reviewed in detail in my Top Ten column. My opinion on those four is unchanged and is as positive as it was in December.

I first recommended Safeco (SAFC Quote - Cramer on SAFC - Stock Picks) in a column at $24 at the end of January, coinciding with the market high for the year, and it has thankfully diverged from the market as it has increased in value while the market has declined substantially. This insurance stock is still a good bet at about $26.50 as it has net tangible assets of over $31 per share. And I anticipate those assets (principally short-term bonds) will increase in value as the Fed lowers interest rates. I also think the cycle has turned in the property casualty sector in terms of pricing and capital flows.

Centennial Bank

This superbly managed regional bank in the Northwest, down from about $14 a couple of years ago, continues to grow at double-digit rates. The metrics are impressive at Centennial Bank (CEBC Quote - Cramer on CEBC - Stock Picks), with high rates of returns on assets and on net equity. If your research agrees with mine that this stock will do well as the Fed lowers interest rates, use a limit order to buy, not a market order, as this stock is sometimes thinly traded.

Centennial Bank Continuing to grow at double-digit rates

Delta Airlines

When talking to investors, it's difficult to generate much enthusiasm for investing in airlines. The more negativity I encounter, the more I like the airlines, and Delta (DAL Quote - Cramer on DAL - Stock Picks) is one of the better values in the sector.

Delta Airlines On sale now, with plenty of reasons to buy

There are several reasons to be interested in a stock like Delta. They include:

• Growth in air travel -- most analysts project strong growth in air travel over the next decade;

• Capital shrinkage -- capacity is being withdrawn, not expanded, in front of this growth in demand. TWA is being acquired, maybe US Airways (U Quote - Cramer on U - Stock Picks) as well, and other airlines are shuttering some capacity;

• The most important reason to buy an airline such as Delta -- because it's on sale!