Weekly Portfolio Summary

After a short week, the market was down slightly, but not by a lot.  As is typical of short weeks, very little information of major value came out.  However, a wet blanket was thrown onto what was appearing to be a bullish resurgence.  Federal Reserve voting member James Bullard made comments stating that the next rate hike could be any time now.  He did associate the conditions of a strong jobs report being a potential catalyst to such a decision.  As such, we saw the price of oil drop, and the value of the dollar increase on Wednesday.  There was a bounce back on Thursday, but since this was a short week, how reliable was it?  It does go to show there will be a lot of importance of watching the March non-farm payroll numbers, which will be released this Friday, as the strength of the results could very well dictate the direction the market starts taking.  

It's frustrating to see such discourse from the Fed.  You're constantly getting mixed messages of what might happen, and as such, the market becomes cautious and volatile.  As the dollar got weaker, you saw money going back into international stocks - like Honeywell and Pepsico, but that reversed course on this news, as it should.  The Fed doesn't meet again until nearly the end of April - a long way that will create large amounts of noise to sift though.  This brings a time of caution.  If rates do increase, I actually expect the markets to pull back some again.  However, if this is saber rattling, which has not been an uncommon course of action from varying Fed presidents, a bullish trend could renew once again.  Truth be told, though, I feel we're in a situation where the overall market will be range bound and we'll watch as varying sectors go back into their rolling bull/bear cases base on news events and political rhetoric.

In the week ahead, see how the markets react at the beginning of the week.  This will give some idea of how much credence they will continue to give the hawkish Fed statements.  Then at the end of the week, we'll have the Jobs report that will either be the match to the kindling, or the water on the fire.  A strong report will put people into a cautious state for the stock markets.

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash. Ratings are based upon a combination of 12-18 month outlook on stock direction and market driven need for capital preservation or appreciation.  The ratings may not necessarily directly results in moves I make due to financial positioning and cost basis.

Ones:
Citigroup (C, $41.94, 0.40%) - This stock was chosen on a value basis compared to the sector combined with a long-term view that as the economy (both domestic and global, though initial focus is more domestic) picks up steam, the banks will begin to profit more from it.  That improvement has continued to be slower than expected, though.  Fed discourse keeps this stock volatile as one moment rates aren't going up, next moment someone is saying they could be right around the corner.  Citigroup also announced that the first quarter results would be much worse than expected due to a significantly reduced trading profits.  This puts a pinch on the banks for the near term.  That said, the charts and indicators are actually starting to show some positive formations, a reverse head and shoulders pattern is holding, but other indicators have turned more bearish, signaling a potential reversal.  The stock needs to hold above the 50 day moving average of around $40, or the wind is out of the sails for a bit.  Despite my message last week, events that have unfolded do put more risk in the stock going down.  I still expect that downward pressure to be a buying opportunity, but you may be wiser to pick at it slowly.  I still think there is multi-year upside for the company once current conditions stabilize.  I have estimated TBV to grow 5% in 2016 to a price that's a little below $63.75.  Current conditions make me believe that the best price C can get is 0.9 times TBV, though.  If banks become favorable again, I believe that multiple to be more like 1.4 times.  As such, my price target is currently at $57.50.  Citi is 13.4% of my portfolio.

Pepsico (PEP, $100.68, +39.26%) - I chose this stock for the strong management, it's strong and continually growing dividend, and their focus to provide food people want - be it healthy, natural, or the classics.  It's also a nice safety stock to have in volatile and rough times, which we're clearly in while the markets digest our environment.  All estimates have been based off of a strong US Dollar, but that strength started to wane - especially since the Fed's  statements regarding less rate increases.  However, now that we have other Fed officials indicating potential hikes, we really don't know where the dollar is going and have to get more cautious again.  Commodity costs do improve, but the quality of improvement also hinges on the strength of the dollar.  The company's commitment to returning cash to the stock holders while continuing to grow the dividend is also something people will flock to while rates continue to stay low.  This is why the stock's price is strong despite what really appears to be high valuation.  The charts are weaker with the new chatter, but not really bearish.  Right now, I think the downside risk is to around $98.50 - the 50 day moving average.  That's not a big drop.  I'm not as confident in this being an ideal buying point, though.  The strength of the dollar is too much a factor.  I leave the stock as a 1 for now, but wouldn't recommend buying unless we see a stronger pullback and the jobs number doesn't come in too strong.  My earnings estimate for Pepsi is $4.68 for 2016 with an adequate multiple of 22, putting a target price of $103 for the stock.  I'll wait for first quarter results to make adjustments.  PEP is 11.7% of my portfolio.

Twos:
Cedar Fair (FUN, $59.03, 6.93%) - The focus of this stock is a sense of safety as the stock features a good dividend as well as decent growth that coincides well with the strengthening US economy.  The company is essentially off of business until late spring, so outside of earnings, I don't anticipate much news to drive the stock.  During their fourth quarter announcement, the management team was extremely bullish on its outlook.  They're well ahead of EBITDA targets for 2018, and are extremely excited about their growth prospects.  This is extremely encouraging and is why the stock has taken off since the announcement.  Clearly wages costs are something to watch, but management appears to have this well in hand as well.  With oil down so much, it becomes more likely they would benefit from more cash in consumers' pockets.  Technically, the stock has broken out big time.  We're actually at a point where the stock may be a little ahead of itself, so don't be surprised if we see a pull back of a few percent.  I expect the positive trend to continue under the current circumstances, though, and we'll likely see the 50 day moving average cross the 200 day average, even as the stock takes a breather.  This should help build some new levels of support as we trend into a stronger bullish pattern.  I am looking for the company's earnings growth to get better again, but for now am playing a conservative $2.80 estimate for 2016.  With interest rates rising, I want to get more conservative with my multiple, so I'm going to lower it to 22 times earnings (5-year earnings growth estimates are 25% annually, so I'm essentially estimating the stock to an extremely cheap 0.88 PEG ratio), putting my price target at $62, but noting that it has a lot of potential in a favorable market.  I missed my opportunities to fill my position, but it's mostly full and this is a pretty good problem to have.  Cedar Fair is 14.6% of my portfolio.

Honeywell (HON, $111.32, +161.58%) - This stock is selected as a strong cyclical play to growing world economies - especially for the aerospace and automotive industries.  The management team has been extremely reliable in both good and bad times as it's become pretty easy to expect you'll get exactly what they say most of the time.  Fears of a deflating automotive cycle were quite premature.  While the company's Performance Materials and Technologies businesses suffer mostly from the downfall of oil prices, it's other businesses have been strong - especially the Aerospace businesses.  Orders are up for their various airplane components, defense spending is up, and their automotive business is growing faster than the industry as they continue to grow their share in both gas and diesel turbos.  The stocks technicals have become much more bullish since their earnings statements with the 50 day average now crossing the 200 day.  With the Fed news as a catalyst, the stock price has started to correct itself.  I see down side risk to about $105 right now. My estimate for 2016 is $6.55 with a 17 multiple.  That puts my 2016 target at $111.  A week ago, things looked more favorable, now, we're not as certain.  We'll have to watch the jobs report on Friday to see if we get a directional idea.  I'll maintain my price target of $120, however, I don't expect to see that price any time soon.  I'll wait until I hear the first quarter call to determine if I will make any further adjustments.  HON is 18.5% of my portfolio.

Home Depot (HD, $130.46, +110%) - This stock is my quintessential play on the health of the US economy.  I believe more houses will be built or bought in the coming years and, with salary growth in the economy, the benefit will be seen by a company that executes as well, as Home Depot does.  Even if rates do rise, I expect this stock will still perform well early on as people will be rushing to buy their homes before rates get too high, and a strong economy will result in ongoing home improvements for a better home experience.  That said, if rates increase rapidly, I would expect for a more rapid negative impact to the stock because its purpose is to focus on future earnings.  Recently this is the one part of the retail sector that continues to have strength and I don't see it changing.  Consumers have become more focused on experience (see Cedar Fair as an example) than just objects.  While the house is an object, making the improvements to have the happiest experience while home is really the attitude I see forming.  I have a 2016 estimate for EPS of $6.16.  My multiple is still at 22 times earnings and that puts the price target to $135.50.  I may raise my multiple again, as the one strong spot in the retail sector, its domestic presence, and its overall performance is showing signs of people willing to pay higher multiples.  Ever since their earnings announcement, the stock has been on a general rise.  The technical patterns are all very strong with a potential reverse head and shoulders forming.  There are some signs that the stock is pulling back, or maybe more likely, stalling out for a little while.  The price is a little lower than I thought it might be, but the action is still acceptable to what I've anticipated.  HD is 13.8% of my portfolio.

On Semiconductor (ON, $9.39, 10.32%) - The softness we've seen in other semiconductor companies was also visible when On last reported.  That said, they were able to control their costs and keep earnings under control despite slightly disappointing revenues.  They reported strong order activity in the current quarter, but issue caution as we've seen false positives before.  That said, they expect to continue to outgrow others in their key industries of automotive, wireless, and industrial products.  The factor that has made such a dramatic change to the stock over the last 3 weeks is the status of the Fairchild offer.  Towards the end of February, Fairchild announced that the bid from the Chinese company was not superior to On's bid, and as such, we've seen a dramatic shift in shares being tendered to On Semiconductor (voting in favor of the On deal).  In addition, On has received approval from Germany and Japan to clear them of any anti-trust issues.  Suddenly, this buyout looks extremely possible and what it does for the company is going to be massive as there are many synergies to take advantage of between the companies, and the merger will make On Semiconductor a major player in the analog chips space.  To say the last time I commented on this stock was the bottom, would be an understatement.  It has surged since that last time, and the charts are all extremely bullish.  It would seem that market sentiment is causing the stall in price appreciation to happen just a little earlier than expected, but as news continues to roll out about this merger, I think the stock is going to see a continued surge.  I maintain an earnings estimate of $0.92 for 2016 assuming either the merger, or an increased share repurchase will help with earnings as we progress through the year.  Also, the higher promise of a deal has to expand the multiple, because the growth prospects are much larger than they were before.  I'm raising my multiple to 14, giving a new price target of $12.75 - a target I find reasonable, under current conditions, only if the deal goes through.  Should first quarter results bring more signs of strength, we may need to make more adjustments.  I have no choice but to raise the stock to a 2.  It should've been a 1 or 2 last time, as so much risk was out of the stock, I was just blind to that fact.  If you can get a decent pullback, a buy would be worthy.  ON is 6.3% of my portfolio.

Threes:

Ionis Pharmaceuticals (IONS, $41.62, -27.66%) -  The Ionis story is a difficult one.  It's been a wild ride over the last few weeks as the stock has been making dramatic (4% or more) moves - both up and down.  The fundamentals of the company are still in good shape, despite having 6 drugs in Phase 3 studies.  They project a Net Operating Loss (NOL) of around $60 million and cash reserves of over $600M by the end of 2016.  I expect these numbers to be beat, as that has been the history for being conservative.  This years numbers of a NOL of $16M and cash reserves of $775M help shape that picture some.  With a pipeline of almost 40 drugs and an eighth of them in phase 3, there is certainly a lot of large opportunities in front of us.  The down side is that the phase 3 results aren't likely to show up until early 2017, making it harder for this stock to see a pop over the next 4-6 months due to company information, unless we get some new and unexpected partnerships/drugs.  Any phase 2 results that pop up, could also be helpful, if positive (and crushing if negative).  Additionally, there is a lot of political rhetoric that is providing doubt that drug companies can continue to have pricing power for what they produce.  All of this puts pressure on the sector, much less this stock.  Over the last week, we have seen the stock break out of the patterns it was in in a positive fashion - well price positive.  This was brought on due to a court judgement on a patent infringement between Merk and Gilead, though Ionis will likely gain through their partnership on this decision.  I wanted a lower price to buy more, but haven't been able to hit it yet.  It's possible that market sentiment, brought on by Fed speak and rate hike worries takes stocks down again.  That said, all technical indicators continue to have a positive vibe to them.  It's possible that the biotech sector is starting to come out of its funk, and therefore pullbacks may be fleeing and purchases may have to be quick.  For now, I will hold my 2016 price target at $62 and hold my rating at a conservative 3, because of the sector sentiment and strong ceiling of the 50 day.  I see some more value in the stock, but not yet enough to put on a larger position.  The fight against the sector, and the lack of catalysts this year brings me hesitation.  Ionis Pharmaceuticals is 6.4% of my portfolio.

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.