As we complete the second lap of 2005, the Fourth of July awaits investors looking for a much-deserved break. Although the past two weeks have been difficult for many investors, the diversification and focus on current yield has helped the
2005 edition of the holiday portfolio remain nicely ahead of broad market benchmarks.
That doesn't mean that every pick has performed well but, as a whole, the portfolio has operated as hoped; that is, it has provided stability and a decent return in a challenging market. Before we take a look at the individual components of the portfolio, let's take another quick look at the reasoning and rules behind the holiday portfolio.
Every Holiday, All Day Long
The concept and rules for the holiday portfolio are straightforward. Each New Year's Day, I select a group of five stocks that I believe are worth tracking 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
Columnist Conversation. The only way a stock is removed from the portfolio is if the company merges with another company or the stock 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, before you let your mind wander as you watch the rockets' red glare, let's take a quick look at the stocks that make up the holiday portfolio and their performance through the first half of 2005.
Given the recent run in oil and gas prices, it isn't surprising that the best-performing stock in this edition of the holiday portfolio is
Superior Energy Services
, a small yet powerful energy services company with a rapidly growing, late-lived production subsidiary.
Superior provides a host of oilfield services to companies operating in the Gulf of Mexico, as well as oilfield rental tools in many parts of the world. Its relationship with companies like
provides a nice backlog of work projects in the coming months that should help the company post sequential earnings growth in the second and third quarters.
In addition, Superior, through its SPN Resources subsidiary, has begun to purchase mature, producing oil and gas fields in the Gulf of Mexico from major oil companies, while assuming the future responsibility of plugging and abandoning the fields once Superior has milked the final increments of oil and gas. Through its efforts, it currently produces more than 7,000 barrels of oil a day, and wants to increase those levels.
The added benefit of this production program is Superior's ability to use its well-stimulation and workover crews on their own jobs during seasons that other Gulf of Mexico work is slow. Combined with the profit from its production efforts, the efficiencies of putting otherwise idle crews to work should be appealing to shareholders looking for more stable results from Superior.
Superior shares have had a nice run as commodity prices have pushed higher, and would be likely to consolidate should oil and gas prices trend lower in the coming weeks. That should provide an opportunity for those who are looking for a chance to play this name, one I expect to continue to benefit from a prolonged energy investment cycle.
While there may well be a real estate bubble in many sectors of real property and in some regions of the country, an improving economy appears to be helping the office market. And one of the largest office REITs in the country, Sam Zell's
Equity Office Properties
, has posted gains of nearly 14% and still sports a 6% yield.
On Thursday, the company announced additional sales of noncore properties and outlined its accelerated sales program in the coming months. While the reaction to the plan may be mixed, it is a sign that CEO Richard Kincaid is putting his more focused stamp on the company. And, ultimately, it is a series of moves that really will focus Equity Office on its core markets.
While the stock may continue to work higher through the year, the year-to-date appreciation is even better than I expected in what is still an early stage of the commercial property recovery cycle. If you own it (and I do), I wouldn't be in a hurry to sell, but I'm not as excited to add to or establish new positions now as I was at prices we saw earlier in the year. That said, I believe this is a perfect stock for an individual stock purchase and dividend reinvestment program, which is easy given the company's direct stock purchase plan.
There isn't a better long-term real estate strategist than Sam Zell, and Equity Office is likely to remain in my portfolio for years to come.
Not Manic or Depressed
With the big pharma sector finding all sorts of negative reasons to be in the news, it is a bit surprising to me that
has held up so well. The stock is up more than 2.5% and carries a current yield of nearly 2.7%.
As I wrote in January when I decided to put Pfizer in the portfolio, it's a name that requires great patience and, at times, faith. I still believe that and want to hold Pfizer for its long-term capabilities and leadership role in pharmaceutical research. There will be hiccups along the way, but the stock remains attractive at current prices for patient, long-term investors.
Banking on Technology
Two stocks in the portfolio are underwater.
remains a strong regional bank that continues its choppy ways because of the current interest rate environment and concerns over its loan portfolio and growth potential. While it may take some time for the story to work, the now 3.7% yield makes this financial a good place to wait. The company continues to score high on customer service and has done so while increasing efficiencies throughout the organization. Investors don't need to be in a hurry on this name, but U.S. Bancorp is a solid way to gain financial-service exposure with relatively reasonable downside risk.
, which was
this year's readers' choice, brings up the rear. Large technology remains generally out of favor, and the lack of visibility for a new Microsoft product cycle has made many investors impatient.
However, some very smart people suggest the second half should be better for technology shares, and Microsoft should gain some benefit from a rising tide. With a hoard of cash and the ability to generate even more, Microsoft makes sense in the final six months of 2005.
There you have it: Two big bangs for your buck and two smoke bombs in the first half of the year. The lesson here --
as Jim Cramer would say -- is simple: Diversification pays!
Have a great July 4.
At time of publication, Edmonds was long Equity Office Properties and U.S. Bancorp, 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 appreciates your feedback;
to send him an email.