With the Easter holiday upon us, spring is close at hand, rabbits are in vogue and it's time to review the 2006 Holiday Portfolio.
The market has been choppy so far in 2006 and there aren't many good eggs -- like those plastic eggs my parents used to hide a quarter or two inside -- to be found in our group of five. However, anticipating some choppy market activity, the choice of dividend-producing stocks has helped stabilize the portfolio through the first quarter.
Before we take a look at the portfolio offerings, let's revisit the birth and rational behind the Holiday Portfolio concept.
A Portfolio for All Seasons
The concept of the Holiday Portfolio is simple. I select a group of five stocks that I think 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
. 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 longer 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 sit back and enjoy a Spring day off, let's take a quick look at the stocks that make up the holiday portfolio and their out-of-the-gate performance.
Up in Smoke?
By far the worst performer in this year's edition of the holiday portfolio has been
. While the company has pieces other than the Philip Morris tobacco division, the focus recently has been on potential liability from pending and "on appeal" tobacco litigation. While a significant risk, the company has managed risk well in the past, and that is likely to continue. In addition, the company faces increased competition from discount tobacco products that have eaten away at both market share and margins.
However, Altria remains a cash-generating machine and recent weakness in the shares are likely a good entry point for patient investors. The 4.6% dividend is safe and will likely be increased as the company reviews its dividend policy this summer.
, is also slightly underwater as investors continue to try to figure out the growth potential of the various, diverse divisions of the company as the economy continues to show growth. First-quarter earnings, reported Thursday, were in-line with expectations but guidance wasn't anything unexpected. I continue to think that General Electric will continue to perform in-line with the general economy and will get a boost at times from strategic asset decisions.
, one of North America's most prolific natural gas producers, is also a bit underwater, largely from the decline in natural gas prices. However, if you believe, as I do, that the natural gas market will remain tight in the coming years, then Chesapeake is an interesting play. The company provides focused exposure to the natural gas market, solid opportunities for production and reserve growth and a solid management team that can execute on the growth strategy.
Some Good Eggs
Among the strong performers this year is
. While the stock is relatively flat since our last review, talk of new drugs, hope for better patent protection (we'll see about that one) and new drugs have all helped boost the outlook for the downtrodden drug company.
There is still plenty of work to do here, but I continue to believe longer-term investors need exposure to health care, and the cheap nature of big pharma combined with healthy yields make the sector a place to have exposure. The recovery and reality may be a bit choppy, but I like what I am seeing, at least for now.
has tracked the bank group and continues to look attractive both as an operating bank and as a potential consolidation candidate should the regional bank M&A market reheat.
has been slow to gain traction, but as new product chatter continues to build this year, the stock will gain more attention.
So a mixed basket, but with more volatility likely in the weeks ahead, the dividend profile of the portfolio should help. More on Memorial Day!
Have a safe and happy Easter weekend.
At time of publication, Edmonds was long MO, although holdings can change at any time.
Christopher S. Edmonds is a 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;
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