Let's talk turkey.
If there were ever an appropriate description of this year's holiday portfolio, that is it -- a bunch of turkeys. While we can cite scores of reasons for the decline in this portfolio of five interesting companies picked at the beginning of the year, the fact is the holiday portfolio looks headed for a very disappointing showing in 2008.
So, let's dive right in and discuss the current status of each company in the bunch and where we go from here. First, a quick review of the holiday portfolio concept.
All Year: Rain or Shine, Good or Bad
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
'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 long 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.
A Difficult Economy
With the unraveling of the credit markets and economy, economically sensitive stocks have taken a pounding, including three entries in the holiday portfolio. We address each, in turn.
Advanced Micro Devices
was a bet on a renewed PC cycle and the possibility that technology would move in AMD's favor. Neither has happened, and the stock has suffered. While it looks potentially cheap, so do many other names, including
, which will lead the chip market once the market begins to recover. I see very little reason to be in AMD at this point, although we will report one more time come the Christmas holiday.
Bank of America
may be one of the more interesting prospective plays in the portfolio. While the carnage in the bank space is far from over, Ken Lewis has done a surprisingly solid job of navigating a very choppy sea. Moreover, if it gets done, the
acquisition would put B of A in a position to make significant gains through customer convergence and cross-selling. While the strongest bank in the super-regionals appears to be
, Bank of America looks poised to have another day in the sun once we weather the final stages of the bank storm.
The final of the economic calamity trio is
Cheniere Energy Partners
, the master limited partnership that holds the Sabine Pass LNG (liquefied natural gas) receiving facility. With the decline in energy prices and natural gas demand, the increase in domestic natural gas supply, and the overall malaise in the energy markets, this upstart high-yielder has run into concerns over survival. While the LNG market will likely be soft in the coming months, contracts with major integrated companies will likely help support this company in the coming quarters. Not a name for the faint of heart, and there is significant credit risk, but it could be an interesting, highly speculative yield play if you do your homework and understand the risks.
Not Quite Up in Smoke
Two names that, while not immune, have weathered the storm better than others are
and its international brother,
Philip Morris International
. While not entirely spared the impact of the global economic collapse, the products of this tandem tend not to feel as much an economic impact as other consumer discretionary goods. Moreover, the solid balance sheets and big cash generation continue to provide strong dividends to investors. While still down on the year, the dividends -- and consistent dividend hikes -- ease a bit of the pain for investors.
While both have not existed, independently, across a complete economic cycle, it is likely that Altria has stronger legs in an economic recovery, assuming the U.S. gets its house in order as a global economic leader. Nibbling at safe, high-yielding equities in the current environment is beginning to make a lot of sense for investors.
While down nearly 20%, the one stock in the portfolio that may make the most sense in this economic environment is
Equity Residential Properties
, a real estate investment trust (REIT) with a nationwide portfolio of multifamily housing focused on the middle and upper-middle class.
Interestingly, in times of economic chaos, demand for apartments increases just as demand for purchased homes decreases. And, even as mortgage rates continue to come in, more and more homeowners and potential homeowners are being forced to rent. That benefits companies like Equity Residential that have consistent product offerings.
While rent rates may feel a pinch as the economy continues to contract, Equity Residential has proved itself an astute manager of costs and very efficient operator. The 6.5% dividend provides support as well.
I've been in the investment and finance business for more than two decades, and it's safe to say the events of the last several months have been unprecedented and the challenges of the market have been, in many cases, chilling.
Yet we continue to live in a nation that affords opportunities unrivaled in the world and in a country that provides freedom to live, succeed -- and even sometimes fail -- unlike any other. For that we should all be thankful. It has certainly been a tumultuous year, yet there is still plenty for which to give thanks.
Happy Thanksgiving to all!
At time of publication, Edmonds had no positions in the stocks mentioned, although holdings can change at any time.
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.