For the holiday portfolio, its time to talk turkey.
It's been a tough market. Concerns over the fallout from the subprime debacle continue to spread, and when that was combined with fears of a slowing economy and skyrocketing oil prices, the markets took a late-summer swoon. The beginning of fall has been no better, and the markets remain unsettled.
Yet, with the exception of the lone financial entrant in the Holiday Portfolio, our stocks have held up well. The key: diversification.
Before we dig into the details, a quick reminder of the Holiday Portfolio's purpose and ground rules.
The Year-Round View
The concept behind the Holiday Portfolio is straightforward: 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
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 will 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.
Today, we review the five stocks selected at the beginning of 2007 and the outlook over the coming weeks.
One important hallmark of the Holiday Portfolio -- and what should be an important tenet of any portfolio -- is industry and sector diversification. All of my life, on the buy side and on the sell side, I have preached the importance of building a well-rounded portfolio for all-weather markets.
This year's success is, in large part, due to that strategy. While the portfolio has financial exposure in the form of
Bank of America
, it also has entrants from four other diverse sectors. So while the financial sector is lagging, the overall portfolio is scorching the market.
The second hallmark is current income. While not every stock in the portfolio provides a dividend, most do, and those that do we considered very safe at the beginning of the year. So even in a difficult market we have an income component that can provide a solid foundation for growth in value. While some may now question the safety of financial dividends, we continue to believe that BofA's base dividend is secure.
There is little question that the portfolio winner this year has been
Carrizo Oil and Gas
, up more than 70% since January. This natural gas explorer has been incredibly successful in the Barnett Shale of Texas and along the Gulf Coast of the U.S. In addition, the company has received a boost from recent oil discoveries in the North Sea, a piece of the portfolio that is still not entirely recognized in Carrizo's price.
Though a lot of the easy money has been made, opportunities in the Floyd Shale as well as continued growth in the North Sea and the Barnett Shale make this a core small-cap energy holding into the coming year.
We are also thankful, finally, for old Mister Softee. A stock that many had written off,
has finally provided some value for patient shareholders. Though a slowing economy could slow this run, Vista is finally gaining traction, and a new round of hardware in software upgrades should continue to support current value.
And then there was
. As I have said before, how can you not own this stock? Great management, superb cash generation and an ability to make money across economic cycles make this one of the best core holdings for almost any portfolio. While political risk remains, the company has shown that it can navigate those waters, and the dividend is simply difficult to ignore.
Finally, we say good bye to Archstone Smith, which became a private company after being purchased for $60.75 per share in early October. We would usually replace the stock, but we will wait until we pick the 2008 version of the portfolio to consider another real estate play.
It is very difficult to handicap the Bank of America play. I still believe that there is plenty of fallout from the credit crunch and that the credit cycle becomes more punitive before the bad news from financials is done. While Bank of America has its share of issues, they look manageable. That doesn't mean the stock doesn't go lower; it well could. However, I believe the dividend remains stable, and that should begin providing some support for the stock near current prices.
That said, this is one of the most difficult credit markets I have ever seen, and it could get much worse before it gets better. Since I agree to keep these stocks in the portfolio for the entire year, I stick with the pick. However, come the new year, it will be time to seriously reassess the situation.
This holiday portfolio is certainly something for which to be thankful. However, more importantly, we all should be thankful for family, friends and those who serve our nation in support of our freedom and way of life. While these markets may be difficult for us, please think of the challenges facing those who serve our country overseas and away from families this Thanksgiving Day.
From my family to yours, may you have a safe and Happy Thanksgiving.
At time of publication, Edmonds had no positions in 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.