Holiday Portfolio: New Year, New Realities

A financial institution always finds its way into the holiday portfolio. This year we'll look to the money-center banks and turn to Bank of America(BAC). There are a number of good money-center banks, and some would argue I could find more growth in the regionals (witness the great performance of Compass Bancshares(CBSS) in last year's portfolio). But I'm attracted to the strong dividend of BofA, the potential benefits of the MBNA acquisition and what appears to be one of the strongest financial institution brands in the country.

There is one more holdover from last year: Microsoft(MSFT) remains the tech entry in the holiday portfolio. As in the bank market, the technology arena probably offers more dynamic growth names. But the potential for Vista combined with what appears to be a coming PC-upgrade cycle could boost Mister Softee in the coming year.

In addition, the company's cash position will continue to have the potential to create additional shareholder value. This may be the most divisive name in the portfolio. It will either work or it won't, and 2007 should be an important year for the technology giant.

With oil and natural gas prices dropping meaningfully in the first two weeks of the year, the selection of an energy entry for the portfolio has become more difficult. That said, I remain sanguine on the group because the challenges facing oil and gas supply remain.

This year, the focus will again be natural gas. I chose a small-cap natural gas producer to fill the spot, Carrizo Oil & Gas(CRZO). Carrizo is a natural gas producer in the newer, unconventional resource plays such as the Barnett and Fayetteville shales as well as along the U.S. Gulf Coast.

While the company will continue to need to raise capital to push its exploration program full tilt, it also has the potential to post significant production increases in the coming months that could have a significant impact on shareholder value.

We'll also use Carrizo as our barometer for the energy markets in the coming months. With any oil and gas company, a decline in commodity prices or a lack of exploration success can have a negative impact on share price. (My firm has received compensation from Carrizo for corporate finance work in the past 12 months).

Finally, I'll add a yield-producing real estate investment trust to the portfolio, Archstone-Smith(ASN). A REIT specializing in apartments with a 3% yield provides the opportunity for a solid income stream with good fundamental underpinnings. As interest rates have crept higher, the return of the renter has begun. Archstone has an inventory of upscale apartment developments in growing U.S. markets. It's a basic, risk-averse REIT that should provide relative stability to the portfolio.

There you have it, the 2007 Holiday Portfolio. Stay tuned; I'll introduce the readers' choice and take a more in-depth look at all five entries in the coming weeks. Have a great 2007!

Company & Ticker	Recent Price	Indicated Ann. Div.	Current Yield
Altria (MO:NYSE)	$89.40	$3.44	3.85%
Archstone-Smith (ASN:NYSE)	$59.87	$1.74	2.91%
Bank of America (BAC:NYSE)	$53.26	$2.24	4.21%
Carrizo Oil & Gas (CRZO:Nasdaq)	$26.46	-	0.00%
Microsoft (MSFT:Nasdaq)	$30.70	$0.40	1.30%

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