Happy Fourth of July!Well, not terribly happy, if you are the holiday portfolio. While Thursday's rally certainly provided a boost to the performance of the portfolio, there is still plenty of work to do for a happy return for this stalwart group of equities. So, before you pour that first beer and light the first bottle rocket (only where they are legal, of course), let's take a quick look at the portfolio.
From January to DecemberThe 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 RealMoney.com'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 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 help 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 enjoy our nation's independence and the pyrotechnics of summer, let's take a look at the five stocks of summer.
Bank on ItPerformance in the holiday portfolio would be much less exciting if not for our one financial entry, Compass Bancshares ( CBSS). A growing Southern super-regional bank, Compass has done a solid job of managing growth for the bottom line. With a growing branch network and solid loan portfolio, Compass should continue to see growth in the coming quarters. Moreover, it is likely that additional regional banking consolidation in the South will impact Compass. While Compass is plenty large to have an impact on its own, the need for a succession plan, combined with the potential of premium shareholder value, is likely to push Compass to look at options. On the other side, there are plenty of Southern-focused banks that would likely be interested in a bank with Compass' quality.
FlatlinedThree names in the portfolio are largely at the break-even stage. Altria ( MO) continues to be a solid name for the equity-income crowd, provided you can get past the morality debate. As readers of this column know, I think there is much more to Altria than tobaccom, and as long as tobacco is a legal product, it is no different than any other publicly traded company. The company also has a strong track record of dividend hikes in the summer months, and I doubt 2006 is any different. As a result, Altria is a solid long-term play for income-oriented investors and is a great candidate for a dividend reinvestment plan. Pfizer ( PFE) is also near break-even in a difficult tape and shows the stability of nondiscretionary consumer products companies. While the patent-expiration challenge continues to pressure the company, its pipeline appears robust, and I continue to believe Pfizer is among the best big-pharmaceutical companies for the long haul. Finally, Chesapeake Energy ( CHK) is down just over 4% and remains a leading natural-gas producer. The company recently completed a large financing -- balanced equity and debt -- that helps pay for recent acquisitions.
ChallengesThe reader's choice this year was Microsoft ( MSFT), which is the laggard of the group. That said, Microsoft has plenty of cash and the potential for an accelerating new-product cycle in the second half of the year and into 2007. It's still a challenge, given the overhang in technology and the skepticism over a company the size of Microsoft's ability to grow. General Electric ( GE) has largely traded with the market, but has been a bit volatile on concerns the Federal Reserve may tighten too much, leading to an economic slowdown. While it bears watching closely, that concern appears to be a bit overblown.
Happy FourthA final note: Don't forget the power of the dividend. While the holiday portfolio is down about 1% for the year on a capital basis, dividends provide a buffer, pushing the total return back into the black. In this case, the "two Ds" -- dividends and diversity -- have paid off. We'll be back over Labor Day to take a look at these five stocks. Until then, have a happy and safe Fourth of July!
|Company/Ticker||Recent Price||Price 12/31/2005||Change||Indicated Ann. Div.||Current Yield|
|Chesapeake Energy (CHK:NYSE)||30.41||31.73||-4.16%||$0.24||0.79%|
|Compass Bancshares (CBSS:Nasdaq)||56.08||48.25||16.23%||$1.56||2.78%|
|General Electric (GE:NYSE)||33.27||35.05||-5.08%||$1.00||3.01%|
|S&P 500 Y-T-D||1.97%|
|Source: TSC Research, Company Reports|