Holiday Portfolio: Lots of Duds for the Fourth

Whether it's the challenges in the credit market, the inability of industrial and technology companies to pass through rising input costs causing margin compression or simple investor malaise and multiple compression, nearly every company in the holiday portfolio is facing enormous headwinds.

Consider Bank of America (BAC Quote), down more than 45% year to date. While the risks are obvious and the rewards difficult to see in the short-term, the bank appears at least a cut above those mired in the subprime crisis and seems to be positioning itself for solid consumer growth once the credit markets turn. And even if you can't count on the current yield of more than 11%, you should be able to count on half of that, making it an interesting contrarian play for an investor who can stomach the volatility.

The risk here is the unpredictable nature of the turn, and that's where discipline and style become so important for investors. If you aren't comfortable buying a stock that could drop 20% the day after you buy it, this market is tough to play. But if you start building a position and work into that position over time, you are likely to look back 12 or 18 months from now and feel pretty good about your results.

Advanced Micro Devices (AMD Quote) may provide a similar outcome, albeit for slightly different reasons. In difficult markets, leaders tend to lead and followers tend to languish. For AMD, that is exactly what has happened. Until we get more confidence in the economy, investors who want more exposure to chips will move to Intel (INTC Quote) and avoid the others. Yet when the tech market begins to show strength, the secondary names will move, giving investors an opportunity to profit from AMD at current levels. Again, the biggest risk here is timing.

Cheniere Energy Partners (CQP Quote) has been pinched by credit concerns, global competition for liquefied natural gas (LNG) and concerns that its parent company, Cheniere Energy (LNG Quote) may face liquidity issues. A recent marketing contract with JPMorgan (JPM Quote) should help, but the headwinds for a credit-challenged concern are even greater in a difficult market. The dividend remains escrowed through the balance of the year and should be covered by contracts beginning in mid-2009, but "should be" isn't necessarily good enough in this market environment.

Glimmers of Hope

While Altria (MO Quote) is off about 10%, the recast dividend (after the spinoff) is solid and likely to grow. Moreover, the company remains a solid way to play the core consumer market. And if you include the spinoff of Philip Morris International (PM Quote) in the analysis, the dividend and appreciation provide a bit of solace for investors.

Finally, Equity Residential Properties (EQR Quote) is above water with a solid dividend. The reason for including Equity Residential in the portfolio was simple: The mortgage crisis and slowing economy will create less demand for purchased homes and more demand for rentals. Equity Residential's national footprint of moderate-to-upscale apartments is a good investment fit for today's challenges. In this case, the headwinds provide opportunities for Equity Residential.

Discipline

This year's holiday portfolio, at least to date, is quite humbling. It becomes quite frustrating when you think your investment thesis for individual companies is correct, only to see broader issues turn the thesis upside-down.

Difficult markets, however, ultimately make better investors. Remember, it is important to stick to your discipline, but be nimble -- preserving capital should be the primary goal. There will be plenty of time to make money tomorrow if you preserve capital today.

We'll revisit these names as the Labor Day holiday winds down summer. Happy Fourth of July!

Holiday Portfolio: July Fourth Lots of fireworks; unfortunately, all duds
	Recent Price	Dec. 31, 2007 Price	Change	Current Dividend	Current Yield
Advanced Micro Devices (AMD:NYSE)	$5.44	$7.35	-25.99%	--	--
Altria (MO:NYSE)**	$19.92	$22.20	-10.27%	$1.16	5.82%
Philip Morris International (PM:NYSE)***	$50.60	$49.40	2.43%	**	**
Bank of America (BAC:NYSE)	$22.54	$41.42	-45.58%	$2.56	11.36%
Cheniere Energy Partners (CQP:AMEX)	$9.06	$15.80	-42.66%	$1.70	18.76%
Equity Residential Properties (EQR:NYSE)	$37.29	$37.04	0.67%	$1.93	5.18%
Unweighted Average			-24.28%
Source: Company Reports, Bloomberg, TSC Research ** Represents Altria absent the Philip Morris International spinoff. Does not include Altria dividend ***Philip Morris International spun from Altria -- included here for comparison

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