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I believe the “essentiality theme” is your best option to outperform in this market environment. Boeing Co. (BA) and International Business Machines Corp. (IBM) are my favorite “essential” picks, advises Jeff Kilburg, founder, CEO, and CIO of KKM Financial.

As a core component of a portfolio, The Essential 40 aims to deliver a highly liquid opportunity to maximize upside participation, while mitigating potential downside risks, by investing in stocks that have sustainable business models with optimal margin and profit growth.

The Essential 40 portfolio is an equal-weighted, large-cap core strategy for investors taking a long-term view. The portfolio attempts to identify the best franchises specific to being essential to the US economy and the American way of life, not necessarily the most undervalued stocks.

The main undercurrent of the Essential 40 is to create a large-cap blended basket of companies while seeking to provide investors with more thoughtful sector exposure. The portfolio was built upon the foundation of “Buy what you use,” which we believe is possibly a step further than famous investor Peter Lynch’s theory of “buy what you know.”

Boeing has been a sideways trade for years — but recently (in the wake of trade and tariff conversations), we have seen the stock reignite. Boeing is an essential name that remains critical and vital to the US economy.

Despite being near an 18-month high, a breakout to the upside should occur. Above $250 is rare air in the last five years, so if we get to that level, it could be time to revisit.

As for IBM, Big Blue is back. International Business Machines is a significant player in the cloud computing market. It has had a heck of a run year-to-date, not to mention over the last one-year and three-year periods. It is not inexpensive at 24x forward earnings, but I still like the stock.

About the Author

Jeff Kilburg is the founder, CEO, and CIO of KKM Financial, a boutique asset management company located in Chicago, IL. Mr. Kilburg leads KKM, which provides outsourced chief investment officer services (OCIO), equity and ETF model portfolios, separately managed accounts (SMAs), custom option overlay strategies, investment research, and market commentary to advisors and family office clients globally.

Mr. Kilburg serves as a portfolio manager for the Essential 40 Stock Fund (ESSIX), a modern-day version of the Dow Jones, and has served as a portfolio consultant to Nuveen Investments and InCapital. Previously, he also served as chief investment officer of Sanctuary Wealth.

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