It's a new year, and with it come new realities. Crude oil is down 15% and equity markets are trading at or near record highs. While some question the vitality of the economy, others are worried about inflationary pricing pressures. This certainly will be a year to watch geopolitical events and their potential impact on the markets, from the U.S. policy in Iraq to the actions of a rebel leader in Venezuela to the challenges to the free market system in Russia. Simply, 2007 is already shaping up to be a dynamic year for global markets. Yet, one thing remains the same: It's time for the sixth annual edition of TheStreet.com Holiday Portfolio.
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, I'll introduce the five stocks we will track through the balance of the year and provide some quick comments about each. In coming weeks I will break down each pick with more detail in columns and through the Columnist Conversation. Finally, the readers will speak. For the past two years I have selected one stock from our cadre of readers to include in the holiday portfolio. I'll do so again this year, and will introduce it next week. With hundreds of reader suggestions, I have a tough choice ahead. Look for a complete recap of reader selections -- the good, the bad and the truly ugly -- in the coming week. Now, here are the five to follow in 2007.
All Year LongThe 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 RealMoney's
The Holiday FiveThe holdover for 2006 shouldn't be a surprise to longtime readers of this column. Altria ( MO) is simply an equity portfolio workhorse that deserves a place in just about any core equity portfolio. The consumer conglomerate is a cash-generating machine with solid global growth prospects, a great history of dividend growth, and solid management. And, with the potential spinoff of the Kraft ( KFT) unit a possibility in 2007, event catalysts are also present. While legal risk exists, the company has done a solid job of mitigating such risks in the past and that should continue in 2007. Altria is simply a stock that provides many ways to win, which is the reason it stays in the 2007 holiday portfolio.
A financial institution always finds its way into the holiday portfolio. This year we'll look to the money-center banks and turn to Bank of America ( BAC). There are a number of good money-center banks, and some would argue I could find more growth in the regionals (witness the great performance of Compass Bancshares ( CBSS) in last year's portfolio). But I'm attracted to the strong dividend of BofA, the potential benefits of the MBNA acquisition and what appears to be one of the strongest financial institution brands in the country. There is one more holdover from last year: Microsoft ( MSFT) remains the tech entry in the holiday portfolio. As in the bank market, the technology arena probably offers more dynamic growth names. But the potential for Vista combined with what appears to be a coming PC-upgrade cycle could boost Mister Softee in the coming year. In addition, the company's cash position will continue to have the potential to create additional shareholder value. This may be the most divisive name in the portfolio. It will either work or it won't, and 2007 should be an important year for the technology giant. With oil and natural gas prices dropping meaningfully in the first two weeks of the year, the selection of an energy entry for the portfolio has become more difficult. That said, I remain sanguine on the group because the challenges facing oil and gas supply remain. This year, the focus will again be natural gas. I chose a small-cap natural gas producer to fill the spot, Carrizo Oil & Gas ( CRZO). Carrizo is a natural gas producer in the newer, unconventional resource plays such as the Barnett and Fayetteville shales as well as along the U.S. Gulf Coast. While the company will continue to need to raise capital to push its exploration program full tilt, it also has the potential to post significant production increases in the coming months that could have a significant impact on shareholder value. We'll also use Carrizo as our barometer for the energy markets in the coming months. With any oil and gas company, a decline in commodity prices or a lack of exploration success can have a negative impact on share price. (My firm has received compensation from Carrizo for corporate finance work in the past 12 months). Finally, I'll add a yield-producing real estate investment trust to the portfolio, Archstone-Smith ( ASN). A REIT specializing in apartments with a 3% yield provides the opportunity for a solid income stream with good fundamental underpinnings. As interest rates have crept higher, the return of the renter has begun. Archstone has an inventory of upscale apartment developments in growing U.S. markets. It's a basic, risk-averse REIT that should provide relative stability to the portfolio. There you have it, the 2007 Holiday Portfolio. Stay tuned; I'll introduce the readers' choice and take a more in-depth look at all five entries in the coming weeks. Have a great 2007!
|Company & Ticker||Recent Price||Indicated Ann. Div.||Current Yield|
|Bank of America (BAC:NYSE)||$53.26||$2.24||4.21%|
|Carrizo Oil & Gas (CRZO:Nasdaq)||$26.46||-||0.00%|