Ho ho ho. It's the Christmas holiday break and time to take one last look at the holiday portfolio this year. So finish up the turkey and yams, and let's cast a final glance at the five stocks we've been stuck with all year.
It's a fairly jolly Christmas, with the portfolio's total return -- including dividends -- above 10%. That is especially merry when you consider that
the Scrooge is down over 25%. In a year of transitions in the market, the portfolio has worked just about as I'd hoped: a good balance between dividends and growth.
When I first put this version of the holiday portfolio together, I was looking for five stocks that would provide opportunities in a year that would likely see the beginning of an economic recovery. That said, knowing that the beginning of an economic recovery is uneven and sometimes unnerving, I was hoping to combine the stability of income-producing equities with companies that were poised to benefit from economic growth, with the income providing a hedge if the timing was a bit off.
Before I take a closer look at the five members of the portfolio, let's quickly review the purpose of this exercise I call the holiday portfolio.
All Year Long
I created the first holiday portfolio three years ago hoping to craft an occasional column (for those looking for something to read on market holidays) that would track a concentrated portfolio of core equities for an entire year. In doing so, it gives me -- and you -- the chance to think longer term about the fundamentals of a company's business as well as its industry.
We follow the stocks in the holiday portfolio throughout the year regardless of their performance. A stock is removed from the portfolio only if it merges with another company or ceases to trade on a major exchange.
Not only should the portfolio serve as a forum for more in-depth discussion of investment decisions and company strategy, it should also serve to reinforce the importance of ongoing portfolio analysis. In addition, through occasional comments on the stocks in
Columnist Conversation, it provides an opportunity to look at both short-term trading strategies and longer-term investment strategies with the same stocks.
This year's twist is the readers' selection.
On Dec. 31, 2003, I asked you to review the stocks you routinely follow and send me your best idea for the portfolio. After more than 250 unique suggestions, the readers' pick was Pfizer. Ouch!
The big swoon in Pfizer has had the most significant negative impact on the portfolio in the last three months. If the impact of Vioxx and
wasn't enough, the company's recently detailed problems with Celebrex made it even worse. Those issues, combined with concerns over generics and longer-term development pipelines of the major pharmas, have punished all of the big names. Pfizer is no exception.
At Thanksgiving, I argued that while it's hard to catch a falling knife, Pfizer is very intriguing at current prices. While I still believe that, I don't want to be early here, because the next leg could well be lower. That said, 2005 could be an interesting year for many of the drug companies and I am watching the entire pharma basket for a good opportunity in the coming year.
Another portfolio challenge this year has been
Equity Office Properties
, a commercial office property REIT that has struggled with occupancy and rent issues as the economy works its way back. As discussed before, the company took a large position in the California market just as the economy -- and real estate markets -- turned south.
This story looks like it might have a positive ending in 2004. The stock is now up for the year, and the nearly 7% dividend makes a nice gift just for waiting. It is a name I have owned and will continue to own as part of the real estate allocation in my portfolio.
And as I've noted before, Equity Office has a salty management team, led by Chairman Sam Zell and CEO Richard Kincaid, and that will go a long way to maximize Equity Office shareholder value as the market continues to improve. You now get a 7%-plus dividend to let this story play out. I'm willing to be patient for it as the economy improves.
Banking on Growth
Also underwater for the year on a price basis is Southeast regional financial player
. Many banks have been volatile around the flat line this year as interest rate policy continues to evolve. But First Horizon continues to perform with its multifaceted financial services menu, from banking to capital markets. Earlier this year the company changed its name from First Tennessee to eliminate the geographic label. While the company's performance has cooled off, this remains a prime target should regional consolidation return to the banking world.
Even without consolidation, First Horizon is likely to surprise with strength in its consumer lending and mortgage business in the coming quarters. And like other brokerages, it could get a boost from its capital markets business. While First Horizon has been a disappointment this year, I'd continue to watch this name into the new year as well.
The clear portfolio winner this year will be
. While down slightly from Thanksgiving, the 30%-plus gains are remarkable. Higher commodity prices and the company's ability to continue its build-out of a global energy strategy have provided solid returns for shareholders.
While I will continue to hold ConocoPhillips in my own portfolio, the company's interests in Russia deserve watching. The apparent renationalization of
assets is troubling and could easily have a chilling effect on foreign investment in Russia. While it's a small part of ConocoPhillips' overall strategy, a hiccup in Russia would impact ConocoPhillips. Also, on a positive note, watch the company's involvement in the developing liquefied natural gas markets. Over time, the LNG market could become an important part of Conoco's North American natural gas strategy.
has brought good profits to life this year, and in my view, this is a sign of good economic things to come in the next several months. GE remains a broad market and economic recovery play.
Again, as I mentioned on Thanksgiving Day, I would pay particular attention to the environmental services group at GE as well as its power engineering business. Those two businesses have been weak as the economy corrected in past years, but there are signs of life in both sectors, and they deserve a close eye in the coming months.
That's it for this edition of the holiday portfolio. From all of us to all of you, happy holidays. Please travel safely and join us here next week as we introduce the 2005 edition of the holiday portfolio. Until then, enjoy time with family and friends.
At time of publication, Edmonds was long General Electric, ConocoPhillips and Equity Office Properties, although holdings can change at any time.
Christopher S. Edmonds is vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. 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 welcomes your feedback and invites you to send it to