Happy Labor Day!
As summer winds down, the final weekend of the traditional vacation season is a happier one for the holiday portfolio. Although the first half of the year was not a terrific time for this group of five stalwart equities, the last half of summer has been quite positive.
Better market action, stronger fundamentals and a couple of good picks have helped propel the holiday portfolio back above its benchmarks, up over 9% year to date.
Although the market will certainly throw its share of curveballs as we approach baseball's fall classic, I remain comfortable with the core holdings in the portfolio. Before we take a quick look at each, let's review the rationale for the holiday portfolio.
The concept 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 on
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.
So, as you enjoy a day of recognition for all of our collective labors, let's take a look at the five stocks.
The leader in the portfolio remains
. A growing Southern super-regional bank, Compass has done a solid job of managing bottom-line growth. With a growing branch network and solid loan portfolio, Compass should continue to see growth in the coming quarters.
The company should also benefit from the slow consolidation of regional banks across the South. It's not wise to play the regionals just because of consolidation, but continued combinations among Southern regional banks should help support the multiples of all banks in the region.
Also strong has been
. Although big pharma continues to face its challenges, Pfizer is near the top of the group and, assuming a continued strong pipeline, should continue to reward patient shareholders. The stock will be volatile, but a balanced portfolio needs exposure to health care, and pharmaceuticals are obviously an important component of health care.
has come through with another dividend boost, and the stock has been a strong performer since the July 4 holiday. The company continues to be a solid name for the equity-income crowd as long as you can get past the morality debate. As readers of this column know, I believe there is much more to Altria than tobacco and, as long as tobacco is a legal product, it is no different than any other publicly traded company.
Plus, the likely spinoff of Kraft remains an attraction for shareholders. Although the Altria board provided no indication of timing at its recent meeting, it should still occur in 2006, and should, at the least, spark additional interest in Altria shares.
The Not So Strong
Every year for the Holiday Portfolio, I let the readers choose which stock to include in the portfolio, and the choice stock this year was
, which continues to lag the market. That said, Microsoft has plenty of cash and the potential of an accelerating new-product cycle into 2007, including the long anticipated albeit oft-delayed introduction of the Vista operating system. It's still a challenge given the overhang in technology and the skepticism about the growth prospects of a company as huge as Microsoft.
is now a laggard in the portfolio, as it continues to suffer from concerns about the economy and its just-average business-unit performance. The stock will likely continue to feel economic pressures, but any signs of economic vitality would likely lift the stock.
is flat (taking into account the dividend), and it has struggled in a relatively strong but volatile energy tape. Although the stock has been disappointing, the company continues to do the right things, focusing on building the best natural gas production book in North America and protecting profits through opportunistic hedging strategies, securing an $8-plus price for a majority of its anticipated natural gas production in 2007. Eventually the stock will catch up with the company's performance, and it remains a core energy holding for patient investors.
A final note: Don't forget the power of discipline, focused holdings and dividends. If we had given up on this portfolio on the Fourth of July, the major gains of the past two months would have been missed.
As indicated in July, the dividends kept us in the game as we waited for good things to happen -- and they did. The portfolio is balanced and diversified, the fundamentals remain good, and the stocks boast solid dividends. For long-term investors, those shock absorbers will help you in difficult markets, while in energetic markets, they will give you solid returns.
We'll be back Thanksgiving Day to take a look at these stocks. Until then, have a happy and safe Labor Day.
At time of publication, Edmonds had no positions in stocks mentioned, although holdings can change at any time.
Christopher S. Edmonds is partner and managing 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 appreciates your feedback;
to send him an email.