Merry Christmas.

With Santa's work done and the presents unwrapped, attention turns to food, football and, of course, the final 2006 edition of the Holiday Portfolio.

While a few of the six portfolio components started off the year stuck in the chimney, many of them finished on this Santa's "nice" list, aided by a strong late-year market rally and solid fundamental performance at the companies themselves.

Before diving into the specifics, let's take a look at the purpose and process of this version of the Holiday Portfolio.

All Year Long

The concept is simple: I select a group of five stocks that I believe deserve watching over the next 12 months, readers add another stock pick, 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'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 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 short-term trading strategies and longer-term investment strategies with the same stocks.

So, as you enjoy this holiday and all the joy that comes with it, let's take a look at the portfolio at Christmastime.

Banking Profits

The year's nicest entry in the Holiday Portfolio is Compass Bancshares ( CBSS), which has benefited from a strong Southern economy and a solid rally in many of the larger regional banks.

The stock has rallied into the holiday season as banks have provided a nice lift to many portfolios in the past two months. Regional banks should continue to perform well, although Compass now trades more in line with its peers. Banks like Compass, especially with strong branch networks and good expense and bottom-line management, should continue to get attention into the new year.

Ho, Ho, Holiday Gains in the Jolly Holiday Portfolio
Company & Ticker Recent Price Price 12/31/2005 Change YTD Dividend Yield at Cost Current Yield
Altria (MO:NYSE) $85.72 $74.72 14.72% $3.44 4.60% 4.01%
Compass Bancshares (CBSS:Nasdaq) $59.75 $48.25 23.83% $1.56 3.23% 2.61%
Microsoft (MSFT:Nasdaq) $29.98 $26.15 14.65% $0.36 1.38% 1.20%
Pfizer (PFE:NYSE) $26.07 $23.32 11.79% $1.16 4.97% 4.45%
General Electric (GE:NYSE) $37.77 $35.05 7.76% $1.00 2.85% 2.65%
General Electric (GE:NYSE) $37.77 $35.05 7.76% $1.00 2.85% 2.65%
Portfolio Performance Y-T-D 11.32% 2.97% 2.62%
S&P 500 Y-T-D 11.84%
Source: TSC Research

The most volatile member of the portfolio over the past month has been pharmaceutical giant Pfizer ( PFE). The company dropped a major bombshell in early December when it said it was discontinuing trials of its next-generation cholesterol drug, torcetrapib, due to unexpectedly high death rates in trials.

After slumping more than 10%, Pfizer rallied and gained recent support from a more-than-20% increase in its dividend and the appointment of its president to the additional role of chairman, replacing the outgoing Hank McKinnell. Last week, the company revealed that McKinnell won't go away empty-handed, receiving a $200 million parting gift.

While the Lipitor successor was a disappointment, Pfizer remains flush with opportunities in its pipeline. The sale of its consumer division allows it to focus on new drug development, including potential joint ventures in the lucrative biotech world. And, while the torcetrapib failure shows the risk in new pharmacological developments, Big Pharma remains an important part of a balanced portfolio. Pfizer's nearly 4.4% yield still looks attractive.

Altria ( MO) is the most consistent performer in this year's portfolio and will probably stay that way into 2007. While the Kraft ( KFT) spinoff may be delayed, unnerving some investors, it provides a potential catalyst into the coming year. Plus, the dividend rose earlier this year, and the company's guidance remains strong.

I know, many readers have issues with owning shares of a tobacco company, but it's legal, and my job here is to help you make money. In short, Altria's cash creation is a moneymaker year in and year out. If you like cash and appreciation, Altria isn't a bad stocking stuffer.

Is Mister Softee back? Microsoft ( MSFT) is up nearly 15% and has shown some signs of sustained interest. While a new product cycle didn't happen in 2006, the company does hold some promise of new products in the coming year, and new alliances may present opportunities for patient investors. In short, Microsoft may make it onto the "nice" list in 2007.


Although Chesapeake Energy ( CHK) is one of the nation's largest -- and smartest -- natural gas producers, the stock has been the dog of the Holiday Portfolio in 2006. Volatile natural gas prices and the company's continued aggressive acquisition posture have certainly contributed to the sluggishness. A recent equity offering that didn't trade well has also presented a challenge to a company trying to rebuild investor confidence.

Those variables may have temporarily stalled this stock, but CEO Aubrey McClendon has skillfully positioned Chesapeake for the future. His efforts should pay off beginning in 2007 as the company begins to harvest the assets from recent acquisitions. Next year will be a critical one for Chesapeake if it hopes to retain its position among America's energy-producing elite.

Readers Rally

The readers' pick this year was General Electric ( GE), a name that should generally track the economy. However, its diverse business lines -- one of the company's greatest strengths in a challenging market -- have occasionally been a liability, as the conglomerate has become too complex for many investors to understand.

That said, solid leadership and business units leveraged to the economy should help GE track the market in the coming months. Since Thanksgiving, GE has been among the best performers in the portfolio.

Happy Holidays

We will take one final look at this edition of the Holiday Portfolio come New Year's Day, when I'll also introduce the 2007 portfolio. If you have suggestions for the 2007 Holiday Portfolio, shoot me an email. I'll pick what I consider to be the most compelling argument for a stock from one reader -- so don't give me just a name. Give me your reasons. Your name may show up come New Year's Day.

Until then, remember that this is the time of year for friends and family. Enjoy your holiday and the spirit of the season. May all your dreams come true during the holiday season and in the coming year. Thanks for reading!

At time of publication, Edmonds had no positions in any of the stocks mentioned in this column, although holdings can change at any time.

Christopher S. Edmonds is partner and managing 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; click here to send him an email.

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