Holiday Portfolio: A Welcome Break From a Difficult Tape
With Memorial Day and the beginning of summer on us, many investors are hoping the market will move in the direction of the mercury in the kitchen window thermometer. Concerns over energy prices, liquidity, the economic outlook and, as a result, earnings performance in 2008 have investors shell-shocked. Combine those long-term trends with the wild ride in oil prices in the past month, and market participants are saying thank goodness for a 4-day week.
However, that also means its time to take a look at the holiday portfolio, a group of five stocks that know all too well how volatile and hostile the market has been.
From January to December
Prior to that review, let's revisit the rationale for performing the exercise on these rare market holidays.
The concept behind the holiday portfolio is simple: I select a group of five stocks that I believe deserve watching over the next 12 months, and I follow them -- regardless of their performance -- throughout the year. I'll revisit the portfolio on each market holiday and, at times, make comments about the stocks in
RealMoney's
Columnist Conversation. The only way a stock is removed from the portfolio is if it merges with another company or ceases to trade on a major exchange.
The portfolio serves two purposes. First, it follows the fundamental progress of a group of stocks over a lengthy period of time. My hope is that the portfolio will serve as a forum for in-depth discussion of investment decisions and company strategy, and reinforce the importance of ongoing portfolio analysis. Second, it provides an opportunity to look at both short-term trading strategies and longer-term investment strategies with the same stocks.
Today, we take one last look at the five stocks -- now six -- selected at the beginning of this so-far tumultuous year.
The Good: Three Stocks Above Water
While the performance of the overall portfolio is as painful as the broader market, there are two or three bright spots.
The best performance of the first five months of the year shouldn't surprise anyone.
Equity Residential Properties
(EQR) - Get Report
is one of the country's largest apartment real estate investment trusts, or REITs. A slowing economy and the great housing pinch have created a new group of renters (or re-renters, for those who bought a home, lost a home and are now renting again) and has led to renewed demand for apartments. While not as "upscale" as some portfolios, Equity Residential has solid locations and quality units focused on those most likely to have been affected by the housing bubble. The dividend is solid, and the stock remains a play on an evolving macro housing trend.
Both
Altria
(MO) - Get Report
and
Philip Morris International
(PM) - Get Report
are also in the green. While both remain in the portfolio, the discipline of the portfolio suggests we can re-evaluate any company that has a corporate level event such as a takeover, merger or spin-out. While I continue to like both companies for their steady growth profile, I'm yet to be convinced that the parts hold greater value than the combined companies.
The Bad: Two Stocks Below Water
Advanced Micro Devices
(AMD) - Get Report
remains the technology entrant in the portfolio, picked in hopes that we would see a new buying cycle in the PC world and in hopes that it would catch up to its peers. While the stock has done very little since its early-year swoon, patience is likely to be rewarded here as the product cycle and innovation continue. Demand for new products will, at some point, accelerate, and AMD will capture a share of demand acceleration. In this instance, this is truly not a sprint but a marathon.
Bank of America
(BAC) - Get Report
remains plagued by the same disease as most other money-center banks. While the diversity of Bank of America's business provides more insulation than some, it still has plenty of issues, including dividend decisions. That said, even a dividend cut that keeps the yield at 3.5%-plus would make the stock interesting over the long term. The real wild card to watch in the coming months is the impact of higher energy prices on the economy and, as a result, quality loan demand growth. From a contrarian point of view, nobody wants to own the banks, and for patient investors, that is exactly the time to want to own the banks.
The Ugly: A Company Struggling to Stay Afloat
From the best performer in the portfolio in the first quarter to the worst,
Cheniere Energy Partners
(CQP) - Get Report
is infected with a challenging credit environment, a parent company --
Cheniere Energy
(LNG) - Get Report
-- that has had its long-term viability questioned, and concerns over whether liquefied natural gas, or LNG, will find its way to the U.S. to fill its regasification and storage facilities.
While all of those concerns are fair, Cheniere Energy Partners is an intriguing speculative play on the future of the U.S. LNG market. The Sabine Pass facility -- from which CQP will derive most of its success -- is now open for business, awaiting the arrival of tankers of LNG to its gates. While most global natural gas has been diverted from the U.S. as natural gas prices in Europe, Asia and lands far away are more robust, the market will evolve, and gas will come to the U.S. shores. That will benefit Sabine Pass and Cheniere over time.
While liquidity concerns at the parent company could spill over to the partnership, the escrowed dividend in 2008 and contracts with
Total
(TOT) - Get Report
and
ChevronTexaco
(CVX) - Get Report
to begin using the Sabine facility in 2009 provide some level of support for the shares. And, with demand for LNG regasification and storage capacity likely to increase over the next decade, the Sabine facility and related pipelines are likely attractive assets to larger natural gas and energy concerns.
While the chance of getting back to early 2008 share prices anytime soon is small, the rich dividend -- while also somewhat speculative -- has provided some support. LNG will play a very important role in domestic energy supply in the coming years. The question here is, who will the real players be as the market evolves?
So far, this has been a difficult year for the markets and for the Holiday Portfolio. However, we will stick to the disciplines of solid dividends, portfolio diversity and fundamental analysis with an eye for long-term performance. Stocks don't always do what you want them to do, but solid businesses -- over time -- will almost always produce solid results.
Have a safe Memorial Day weekend.
Reply Reply to all Forward Close Help From: William Hennelly Sent: Fri 5/23/2008 6:23 PM To: Mike Taylor; Ross Snel Cc: Subject: bull bear code. have a good weekend Attachments: View As Web Page
At time of publication, Edmonds had no positions in stocks mentioned, although his firm has provided investment banking services for Cheniere Energy Partners in the past three years.
Christopher Edmonds is managing principal at Energy Research & Capital Partners, an energy investment firm and an affiliate of FIG Partners. He is based in Atlanta. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he appreciates your feedback;
to send him an email.