Let the summer fun begin.
On this Memorial Day, it's time once again to take a look at
Given the stock market's impressive strength, I'd expect the performance of this diversified basket of five equities to correlate roughly with market averages. And, well, that's essentially what happened.
The portfolio's energy component has helped boost the results, while weakness in real estate and the major bank holding have kept the overall performance about in line with the broader market.
Before looking at specifics, let's revisit the purpose behind the Holiday Portfolio, now in its sixth iteration.
Across All Seasons
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 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.
Carrizo Provides Energy
So far in 2007, small-cap oil-and-gas explorer
is the winner, up more than 30% year to date. The company's ongoing growth in Texas' Barnett Shale has pushed current natural gas production levels to all-time records.
Carrizo could get another boost if its exploration efforts along the Gulf Coast of Texas and Louisiana are successful. It's testing a 20,000-foot-plus exploration well that could lead to the discovery of a natural gas field with more than a trillion cubic feet of natural gas reserves. While the well is high-risk, most of the costs have been paid by Carrizo's partner,
Although the well could ultimately prove to be more of a science project than a gusher, it should help provide important data for further exploration of the field. Of course, a gusher would be a positive, but a disappointment could cause a temporary setback for Carrizo's shares.
The real opportunity in 2007 is the company's focus on shale plays. In the Barnett, it continues to grow reserves and production as it becomes more efficient at drilling and producing from the play. In the Floyd Shale, it's still early in the process, so predictions of success are more difficult. Yet, Carrizo's nearly 150,000 acres in the play provide plenty of exploration and development opportunity.
Altria: Still Smokin'
The second strongest performer in the portfolio is
. Some may find the company's tobacco business offensive, but this stock is a consummate money maker. Altria is a very simple story: solid cash flow, good management and an ever-growing dividend. It does face tobacco-related litigation and a small amount of cyclical economic risk. For now, however, it's hard to find a better all-weather stock for a portfolio than Altria.
The balance of the portfolio does have its challenges, but its diversification across sectors with differing levels of economic sensitivity has again proven valuable.
Bank of America
is a solid money-center bank with, more importantly, a solid dividend. Subprime issues have harmed the sector, but Bank of America should emerge without meaningful damage. Moreover, the dividend pays you to wait for the bank sector's next leg up, which should come before year-end.
is still lagging behind the overall market, but it has rebounded nicely from its spring lows. Challenges have included the slow adoption of Vista as well as the lack of momentum for a new product cycle.
Now, Vista appears to be at least modestly successful, and, over time, Microsoft will again be a major software winner. I also still believe we're in the early days of a software upgrade cycle that eventually will make its way through millions of computer users, providing incremental revenue and income for Mister Softee.
In addition, moves to focus more on interactive content are sure to benefit Microsoft. Thoughts of acquisitions in the search-engine and online space show that Microsoft may still have some entrepreneurial spirit. Patience here is likely to pay off later in 2007.
( ASN) simply can't get out of its own way. Concerns about slower economic growth and housing demand have hurt all residential stocks. Although these worries are valid, Archstone's higher-end apartment offerings should be less prone to economic swings than some of its peers. Plus, the current 3.5% yield appears safe. In addition, Friday's talk of consolidation among apartment REITs helped boost the company's performance.
Three names in the Holiday Portfolio are not making the grade, at least in the most recent quarter. However, our diversification strategy pays off and gives us a passing grade. A more stable market with better visibility for growth should help our laggards catch up in the second half of the year.
Have a great holiday, and drive safely.
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.