Carrizo Provides Energy

So far in 2007, small-cap oil-and-gas explorer Carrizo (CRZO Quote) is the winner, up more than 30% year to date. The company's ongoing growth in Texas' Barnett Shale has pushed current natural gas production levels to all-time records.

Carrizo could get another boost if its exploration efforts along the Gulf Coast of Texas and Louisiana are successful. It's testing a 20,000-foot-plus exploration well that could lead to the discovery of a natural gas field with more than a trillion cubic feet of natural gas reserves. While the well is high-risk, most of the costs have been paid by Carrizo's partner, Petrobras (PBR Quote).

Although the well could ultimately prove to be more of a science project than a gusher, it should help provide important data for further exploration of the field. Of course, a gusher would be a positive, but a disappointment could cause a temporary setback for Carrizo's shares.

The real opportunity in 2007 is the company's focus on shale plays. In the Barnett, it continues to grow reserves and production as it becomes more efficient at drilling and producing from the play. In the Floyd Shale, it's still early in the process, so predictions of success are more difficult. Yet, Carrizo's nearly 150,000 acres in the play provide plenty of exploration and development opportunity.

Altria: Still Smokin'

The second strongest performer in the portfolio is Altria (MO Quote). Some may find the company's tobacco business offensive, but this stock is a consummate money maker. Altria is a very simple story: solid cash flow, good management and an ever-growing dividend. It does face tobacco-related litigation and a small amount of cyclical economic risk. For now, however, it's hard to find a better all-weather stock for a portfolio than Altria.

Diversification Works

The balance of the portfolio does have its challenges, but its diversification across sectors with differing levels of economic sensitivity has again proven valuable.

Bank of America (BAC Quote) is a solid money-center bank with, more importantly, a solid dividend. Subprime issues have harmed the sector, but Bank of America should emerge without meaningful damage. Moreover, the dividend pays you to wait for the bank sector's next leg up, which should come before year-end.

Microsoft (MSFT Quote) is still lagging behind the overall market, but it has rebounded nicely from its spring lows. Challenges have included the slow adoption of Vista as well as the lack of momentum for a new product cycle.

Now, Vista appears to be at least modestly successful, and, over time, Microsoft will again be a major software winner. I also still believe we're in the early days of a software upgrade cycle that eventually will make its way through millions of computer users, providing incremental revenue and income for Mister Softee.

In addition, moves to focus more on interactive content are sure to benefit Microsoft. Thoughts of acquisitions in the search-engine and online space show that Microsoft may still have some entrepreneurial spirit. Patience here is likely to pay off later in 2007.

Finally, Archstone-Smith(ASN Quote) simply can't get out of its own way. Concerns about slower economic growth and housing demand have hurt all residential stocks. Although these worries are valid, Archstone's higher-end apartment offerings should be less prone to economic swings than some of its peers. Plus, the current 3.5% yield appears safe. In addition, Friday's talk of consolidation among apartment REITs helped boost the company's performance.

Three names in the Holiday Portfolio are not making the grade, at least in the most recent quarter. However, our diversification strategy pays off and gives us a passing grade. A more stable market with better visibility for growth should help our laggards catch up in the second half of the year.

Have a great holiday, and drive safely.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting