Tuesday, February 21, 2017

Trade: On Semiconductor

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 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Today I sold 40% of my stake of On Semiconductor at a price of $15.90.  At the time of the sale, my position had gained over 87% in valuation and 42% of that increase has been since the first week in December.  While the stock did report spectacular results and a favorable guidance, I don't feel this strong of a move in just a couple months is likely to be sustainable.  As such, I needed to follow my own disciplines and take out some of my gains to protect me from down side risk.  I'm aware the stock technicals are still quite strong, indicating the stock could run more, but by taking out a large majority of what I've invested, I'm now close to playing with the house's money.  I see another 6.5% of room before the stock really feels like it's getting ahead of estimates and analyst price targets.  The stock is also known for pulling back as we enter into the spring months, since the reporting is now done and we're in a seasonally slow period.  This allows me the freedom to let the stock run on its own and take out the remaining investment as appropriate, or I can let it pull back and buy in at a much better time/price.  I still believe in the stock's long-term abilities to be a strong supplier for auto, IoT, and other power management solutions.  I just don't believe the stock and the company are in alignment at this time.  Discipline trumps conviction so I had to follow my rules.

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.

Sunday, February 19, 2017

Earnings Analysis: Cedar Fair (FUN)

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 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Last Wednesday, Cedar Fair announced fourth quarter and fiscal 2016 results.  Earnings appeared disastrous, with a loss of $0.12, which was fourteen cents below expectations.  On the flip side, net revenues came in at an astonishing $192M which handily beat expectations of $182.64M by 5%.  Guidance also continued with the narrative we've been hearing with the company expecting to surpass the $500M EBITDA threshold this year.  Year end EPS ended up at $3.14, which was significantly higher than I estimated at this time last year.  In the conference call, we heard a number of good results from management.  They saw an increase in attendance - despite weather, increased spend per customer, and an increase in revenues from their assets outside of the parks (think hotels, resorts, etc).  Price increases were applied and they saw no struggle in customers accepting it.  Finally, people continue to take advantage of pre-ordering for both park entry and food options.  This saves them a little money, but gives the management team a clearer and clearer picture of their cash flows.  Speaking of cash flows, those have been strong and continue to appear that way.  Management stated they're quite comfortable with their flows to manage debt and distribution payments, which means they shouldn't need to release more equity to cover costs.  In fact, costs aren't expected to grow nearly as much this year (4%) as they did last year because management doesn't expect to see as much in terms of wage increases.  The distribution payment is $3.44 per year, which is a yield of 5.17% as of this weekend's close price.  Healthy enough to limit impact caused by rate increases at this time.

Looking at the stock itself, I maintain my view that this is buyable on a pullback - especially if it reaches a yield of 5.5% (around 62.50).  I am also expecting the company to hit an EBITDA target of around $505M on the year.  Based on the information I've seen, I continue to believe the company will earn around $3.57 this year.  That puts the current price at a little under 19 times my estimate for earnings.  When earnings are expected to grow by 13.7% I feel a multiple of 20 is fair when looking at price targets for the next year.  My 2017 price target is $71.50.  My early estimates for 2018 are EPS of $3.93 and a price target of $78.

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.

Thursday, February 16, 2017

Earnings Analysis: Pepsico (PEP)

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 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

On Wednesday, Pepsico announced fourth quarter and fiscal year 2016 financial results.  Numbers for the fourth quarter were basically within expectations for the top line and a bottom line beat of four cents compared to estimates ($19.5B revenues and $1.20 EPS delivered).  Results were strong as the company managed to essentially meet or beat all of their financial metrics.  It can be said that organic growth came a little below expectations at 3.7% vs. the 4% they targeted, but I'll give them a pass on it.  These growth numbers are off of strong numbers delivered in 2015, so I feel satisfied with the growth represented.  Foreign exchange rates continue to be a problem for the company, with countries like Mexico and Brazil being large portions of their sales, while their currency continues to be devalued against the dollar.  Margins were slightly compressed compared to previous quarters, though management expected it.  There was also some nice reductions in SG&A to help the overall picture.  In addition, the company has already raised its dividend to $3.22 per year and promised $2B in buybacks.  The dividend increase sets the stock at 3% yield as of close on Tuesday, which is a fairly healthy return.  The buyback is lower than it has been in past years, but they used to have their buybacks outpacing their cash flow.  This is now in line with their guidance to keep cash levels sustainable.

In general, the company delivered excellent numbers.  Compare them to some of their peers and the results look even better yet.  It does seem that guidance has caught people by surprise - at least initially - though.  Guidance was "at least 3%" organic growth, and Core EPS growth of 8% (they delivered 9% this year).  Management's earnings guidance was $5.09.  To me, this seems conservative.  Management clearly stated that they are providing guidance for what they know they can meet.  If their worries around macro conditions and volatility turn out to be no big deal, it should set them to beat expectations.  The company also has a history of keeping expectations reasonable, but low and then they raise guidance halfway through the year.  I don't feel this is set up to be much different from that history.  

I believe this company has the right management in place to continue to lead it in the direction we want and need as shareholders.  Their focus is on the right trends and growth while also looking to cut costs and be more efficient.  Guidance may be seen as a concern for some, but I find it to be more of a floor to build off of.  There are downsides and risks here, though.  The stock is already priced around 21 times this year's expected earnings as per guidance.  With interest rates seemingly more likely to rise, I don't believe there's a lot of room for the stock to run a lot higher.  I'm going to guide to an earnings expectation of $5.14 for next year, anticipating things will be better than they currently feel.  This is a couple cents lower than my original estimates as a sign of my own cautiousness.  That sets my price target at $108 for 2017.  While I certainly feel that the company is performing in a way that deserves to get a higher multiple than Coke (which it doesn't today), I don't expect we'll see the multiple get higher.  I expect to see the stock performance of CPG companies to under perform the S&P 500, but I want to keep a position for diversification.  As such, I find the stock to continue to be a core holding and rank it at a 2.  However, I wouldn't look to buy more shares until around the $100 mark - a point I find not to be out of question, given our current macro and economic environments.   

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.

Wednesday, February 15, 2017

Trade: Ionis Pharmaceuticals

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 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Today I added and filled my position in Ionis Pharmaceuticals.  I have come to the point between timing and the company's technicals that this is the best timing I may be able to hit.  The company announced its fourth quarter earnings results for Tuesday February 21 and with the stock pulling back during the day, I took my best chance to get the stock below $47.  I would have preferred $43, but that just didn't seem possible.  I feel it is likely we'll hear more about phase 3 results before or during this earnings call, as this has become a regular pattern from the company.  Since most of these readouts will have impacts on drugs that will likely go commercial this year, I feel the stock is more likely to rise off of these announcements than fall.  I believe the stock has potential to get to and through 52-week and all time highs over the next 12 to 18 months driven by a number of drugs going commercial while others in the pipeline continue through their own paces.

If I continued to micromanage the prices, I was likely to remain frozen and miss opportunities as I have in the past.  The overall market has been booming and could pull back, but for IONS, the stock hasn't performed in suit.  Therefore I felt like this was a comfortable move with the data I worked with.  The rest I leave to time and the company's ability to deliver.

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.

Tuesday, February 14, 2017

Earnings Analysis: On Semiconductor (ON)

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 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

On Monday, On Semi reported fourth quarter and fiscal year 2016 results and what results they were!  Fourth quarter earnings came in at $0.29 and revenues were $1.26B, both of which were beats compared to analyst expectations of $0.23 and $1.21B respectively.  And then the company hit the trifecta and guided higher than expectations for next quarter with higher margins as well.  Cash flow was strong and while earnings were above expectations, expenses were at the middle of expectations, showcasing the higher margin performance compared to what was expected.  Essentially, this was a blowout quarter with great execution on the Fairchild acquisition, where they're already well ahead of schedule.  

As I said, the company also provided guidance that was better than expected.  They essentially guided in line with this quarter's results, which isn't exactly normal for a fourth quarter to first quarter transition for this company.  The third and fourth quarters tend to be their strongest, so that should help provide some perspective on just how strong management is feeling the next year will be for them.  Additionally, should the cash continue to flow this well, they stated they plan to be aggressive on using that cash flow to clean up the balance sheet, which has been a concern I've noted with them going through with the purchase of Fairchild.  Their focus on Automotive and Industrial applications, in particular appears to be the right focus as more and more demand is being seen for their auto sensors, cameras, and LED lighting systems, as well as the same types of sensory items that will play into the movement towards IoT.  These strategies also appear to be helping in cross-selling with customers as well as just overall design wins which continue to reap benefits and show strength in demand.

With some new facts in front of me, I am going to upgrade the stock to a 2, but there's a catch.  I am much more favorable of the stock's long-term prospects, as I'm about to go into, but the stock has had a dramatic run and discipline is saying it's getting to be time to protect gains.  As I look at the stock's prospects, I now see the potential for the company to earn about $1.19 for 2017 and maybe $1.30 in 2018 if we don't run into inventory problems.  I'm still in the camp that a fair multiple for the stock is about 13 times earnings.  That puts a 2017 price target at $15.50 and 2018 at $17.  You'll note that the current stock price is really pushing that 2017 target and we're heading into the "off season" for the stock and the company's earnings.  This has me uneasy and thinking about getting at least some of my profits off the table in anticipation that we'll see a pullback.  I like the long-term prospects of the stock, that's for certain.  Just be careful of when you get into it.  It's more often wise to pay attention to disciplines than it is to bypass them.

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.

Sunday, February 12, 2017

Weekly Portfolio Summary

The last week was rather uneventful for my portfolio while it managed to gain 0.6% compared to the S&P 500's 0.7%.  Right now, the markets seem to be paying attention to earnings, which is a wonderful things.  However, the punditry is focused on a much more unpredictable leadership, making it a little harder to pay attention to what is really moving the market.

The week ahead, however, is going to be crazy.  And since stocks appear to be paying attention to earnings announcements, there's potential for significant impacts to my portfolio based on what is said.  I'll do my best to keep up, but this is just when things get tough to manage for a home gamer.  

We kick the week off with earnings Monday morning, when On Semi shares their fourth quarter and 2016 results.  I've been on sell watch for this company due to its cyclical nature and the fact that the company is much higher than my price target now.  That said, there's potential for more earnings than I believe from their acquisition of Fairchild Semi and the semiconductors, as a whole, have been surging on great earnings results.  There has been consolidation in the industry, inventories appear to be down, and the Internet of Things appears to be creating the next longer term cycle.  Forecasts here will likely be key as we start to step into the company's slower quarters.  Analysts are looking for earnings of $0.23, revenues of $1.22B and feedback that demand is strong and existing inventories are weak.

Next up will be Wednesday where I take on a double header.  First up will be Pepsico who will announce and hold their call before the bell.  After a retreat in stock price while interest prices rose, Pepsico has surged ahead 6% over the last four weeks.  More interesting, and in a way frightening, is the fast that even though competitor Coca Cola reported a very weak quarter, Pepsi's stock continued to go up.  I certainly believe that their diversification into snacks is going to be a significant reason why they aren't impacted as much, but I am a little concerned that the stock's price is getting to a level where the company needs to blow out the quarter and provide strong guidance.  This isn't a stock I'd buy going into the announcements at these levels.  I expect rate increases to hit the stock again and we may see better prices after they announce.  Analysts are looking for sales of $19.53B and earnings of $1.16.  Core organic growth will be what to pay attention to - both in past and future performance.

Finally, Cedar Fair announces fourth quarter and fiscal 2016 results while hosting their conference call later in the morning.  The company had a strong 2016, though the summer months did get a little hot, which caused a slowdown in visitation for a small period of time.  Analysts will be looking for hotel results and continued strength and earnings as the company continues to expand both their Halloween and Christmas events - taking advantage of the holidays, despite their not being good times for ride experiences.  Analysts are expecting earnings of $.02 for the quarter and revenues of 182.64M.  Each quarter is rather choppy and unpredictable compared to a year as a whole.  What should prove interesting is any guidance the company provides.  They've had a EBITDA goal of $500M and it is expected that management will hit that in 2017, despite the 2018 goal.  It'll be interesting to hear if/when they expect to hit that.   

I also want to note that due to the large number of conference calls I have in the week, I likely won't have a portfolio summary prepared for next week.  This will help allow the time I have for research to be put forth on the calls instead.
  
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:
Ionis Pharmaceuticals (IONS, $45.42, -12.73%) -  I chose this as my speculative stock to try to make significant gains in my portfolio.  Unfortunately, the biotechs have fallen out of favor due to a couple high-profile pricing concerns and political banter about getting costs under control.  While the group, as a whole, still isn't out of the woods, Ionis is currently faring to be in a much better position.  The company received approval of its Spinraza drug just before Christmas and Volanasorsen phase 3 data will be released during this quarter (likely shortly before they announce fourth quarter results, as this has been a pattern recently).  In addition, they've inked some partnership deals with Novartis and announced that their results for 2016 will significantly out perform their guidance.  Like Citigroup, the stock has moved a large amount in a short period of time and has since pulled back as investors both take profits and get a little more cautious.  The next big news event appears to be earnings, which is not yet scheduled.  Ionis will be at the Leerink Partners Healthcare Conference on Thursday, so beware new announcements Tuesday or Wednesday.  Technical analysis shows relative strength for the stock in the multi-year and weekly charts, but the MACD for both needs to be watched as it's about to have a bearish crossover, however all indicators I see send it bouncing rather than crossing over.  The daily chart is a bit more negative.  RSI has been on a downward trend since mid-November, and the MACD has been bearish since about Christmas time with no signs of improvement yet.  The RSI has been working towards a trend break, but isn't there yet.  The MACD also had a bullish breakthrough during the week, despite the fact the price fell on the week.  The most interesting piece is despite the short-term down trends, the OBV stays stubbornly flat/strong.  This is usually a contrarian indicator that I believe is beginning to show reason to get into the stock.  As has been way to typical of me, I've been cautious in buying the stock - thinking I might get it lower, just to have some news event happen and send it higher.  I need to get more aggressive and willing to put up with a little more risk in a spec stock like this.  My ideal price is between $40 and $43, but I'm not sure I can get that any more.  I'll watch carefully and react accordingly.  I'm estimating a 2017 earnings target of a $0.50 loss for next year, primarily due to ramp-up costs early on.  My price target for 2017 is about $58.  Ionis is 10.53% of my portfolio.

Twos:
Citigroup (C, $57.63, +37.96%) - I've held this bank for a long time as a play off a turnaround which might be starting to happen.  Economic reports, which have been consistently strong enough to believe the Fed both can and will raise rates, which allows banks to make more money.  Focus now turns to orders to review and potentially repeal the Dodd-Frank bill, which would reduce costs and efforts around regulation.  Anticipation of this is one of the reasons the stock price ran since the election.  The stock remains a value, given its price is below the TBV, but that won't stop it from having pullbacks as it has been catching its breath lately.  The descent has subsided for now, but I'm not convinced it's done yet.  After their last report, there is some concern around their NIM estimates, though they appear exceptionally conservative - predicting no more rate hikes this year.  I'm also a little concerned in an oversupply of stock, which hopefully can be remedied by a combination of permission to buy back more stock and larger dividend payments.  Citi's charts have improved, but we're not out of the woods.  The long-term MACD experienced a bearish crossover and the RSI is trying to recover to a point where it is back in line with its long-term upward trend.  OBV continues to be strong and we saw the stock rise some during the week to back up the potential of laden strength.  The weekly charts are very much in line with the long-term, however, we're seeing some changes in the daily charts.  The MACD has had a bullish crossover.  The RSI and OBV appear to be working towards breaking 3 month trend lines.  The money flow index has also really taken off - indicating we're seeing an increase in money flowing into the stock despite any dramatic movement.  The 50 DMA appears to be a level of upwards resistance, for now, but we won't test that until about $58.50.  I still am very confident in Citi's long-term upward trajectory despite the bearish pattern we see right now.  I would recommend buying shares if it pulls back below $56.   I'm targeting a 2017 TBV of $68 and am keeping my multiple at 1x TBV due to their latest report and overall market sentiment.  Citigroup is 16.04% of my portfolio.

Cedar Fair (FUN, $63.11, +13.07%) - To try to play the strengthening US consumer while also protecting my portfolio with yield, I chose Cedar Fair on the theory that people are looking more for fun experiences to put their money as they feel more comfortable with an improving economy and lower gas prices.  2016 resulted in record sales and there isn't anything, at this point, that has management believing the trend is changing.  They continue to expand their Christmas celebrations and also look to expand or improve on hotel experiences as much of their attendance comes from a wider radius.  This year, the company feels confident that they will continue to see growing EBITDA as they target to make $500M in EBITDA a year faster than originally targeted.  When looking into the technicals, I see signs of a pullback coming in the multi-year view.  The MACD is about to have a bearish crossover and it seems the RSI has gone and dipped below it's multi-year down trend.  OBV is maintaining strength, though, so I'm not expecting major shifts.  There are similar indications in the weekly charts with the MACD about to cross under while the RSI is flat and OBV is strong.  The price has dipped below the 50 DMA as well.  Finally, the MACD is bearish in the daily charts, as is the RSI.  The OBV is still flat.  I'd say that my downside risk is still in the $57 - $60 range ($60 is the 200 DMA whereas $57 provides 6% yield) and odds are you're going to want to buy in more if prices reach this range.  I estimate 2017 earnings of $3.57 and with a multiple of 18, the 2017 price target is $64.25.  I'll have to wait until earnings are released before I can make any adjustment to these targets.  Just another reason why I feel the upside is limited for now.  Cedar Fair is 16.10% of my portfolio.

Home Depot (HD, $139.85, +125.11%) - I chose this stock as a play on the housing and retail industries, expecting positive results from people taking advantage of an improving economy and home prices to invest in home building and improvements.  While Home Depot's results have backed my expectations, the stock hasn't performed in suit over the last year.  The fact that retail is currently weak is certainly a factor to the stock's under performance, but I believe the concept of people wanting to spend more time at home has them investing more in the home.  The stock was choppy to start the year, but recently it has started to breaking out on some positive news from home builders and the fact that a mostly local company, like Home Depot, is virtually safe from the protectionist and anti-trade commentary we've been hearing from the new President.  The company is executing on its plan, taking share, and expect same store sales comps of 5%, which is pretty incredible for a company that isn't opening more stores.  I have a feeling the fourth quarter earnings call and 2017 guidance will be key, but they're quite a while away yet.  In the mean time, the charts are showing a change in sentiment.  We see strong supporting strength in the multi-year charts via a bullish MACD and a RSI that has changed trends for the positive.  Be careful of some indicators reaching into overbought territories already, though.  Meanwhile, the weekly charts have a very bullish MACD, RSI, and OBV.  Things are rougher in the daily charts as the MACD is chopping back and forth over its crossover line and the RSI and OBV stay fairly flat.  Overall, trends are starting to look more positive as we see price patterns now filling out an inverse head and shoulders, the 50 DMA crossed above the 200 DMA, and the MACD has become increasingly bullish in longer term views.  There still seems to be near-term risk as I'm a little concerned over the run the stock has had as we approach the next quarterly results, however, the stock is basically priced about the same as they were when they announced last quarter too.  We've now broken through the $139 barrier I was watching and I anticipate the stock to run more, but if it retreats, we are likely to fall into some more downward pressure.  I estimate 2016 earnings of $6.34 and 2017 earnings of $7.10.  I estimate a multiple of 22, giving a 2017 price target of $156.  I think this is a great company and operator, and you may want to consider picking up stock now or on any pull backs.  HD is 12.97% of my portfolio.

Honeywell (HON, $121.85, +187.85%) - I continue to believe that this company is best of breed in the industrial conglomerate sector.  It does a great job of spreading itself across short, medium, and long-term cycles, has a significant play into the aerospace cycle (commercial airplanes being a primary focus), and they have a management team with a track record of excellent execution.  The aerospace division continues to be an area of concern lately with private jets, helicopters, and defense spending lagging expectations, but I believe this is a short-term event and management confirms this belief by stating improvements are expected to resonate come the second half of the year.  Over the next month we will watch the company transition to a new leader as Dave Cote steps down.  While there was concerns, originally, I believe the market is starting to get comfortable with Darius Adamczyk as shown through the recent increase in stock price.  Taking a look at the charts, the stock has suddenly shown a breakout to the upside, as the stock has reached all time highs and is bursting upwards.  All technical indicators from multi-year to daily appear to be positive, however, I have noted in all of these charts that some of the indicators are starting to stretch into overbought territory as well.  It's important not to get complacent at this time or be caught in a pullback if things get too hot.  It's still early in the move, though, I believe, as it seems to be fueled by overall sentiment regarding how the overall economy is doing and how the market is shifting towards more cyclical names.  I anticipate 2017 earnings of $7.10 - anticipating that the company is currently being particularly cautious.  I also think industrials are going to be able to fetch a stronger multiple if the economies of the world really do start firing on growth.  Thus, I have set the multiple to 18, resulting in a 2017 price target of $128.  HON is 16.95% of my portfolio.

Pepsico (PEP, $106.10, +46.75%) - The epitome of a safety stock, this consumer packaged goods (CPG) company is in my portfolio not just for the safety it can provide when the stock market takes a dive, but also because the company has been performing extremely well on its promises.  It's currently one of the best CPG companies in terms of organic growth after third quarter results.  After dropping down to around $100 while interest rates rose, the stock has since recovered quite well, though I don't fully understand why.  Rates have fallen some over this time period, but not in ratio to how the stock fell when the rates rose.  CPG fourth quarter reporting has been mixed and competitor Coca Cola put up less than desirable results and guidance.  Despite this, the stock continues to rise.  I find myself feeling more cautious when I've watched the stock rise 6% on no news going into the earnings results.  Don't be surprised if the stock pulls back even if results are in line.  Shifting to the charts, things continue to get more positive.  The MACD has bounced and stayed bullish on the daily charts while the weekly and multi-year have both completed bullish crossovers.  The RSI has started rebounding and is about to push through longer-term down trends that it has been following.  So far, it's accomplished this in the daily charts.  The price is above the 200 DMA and the 50DMA is working its way towards a positive crossover.  This is the point where the stock may break out and try to push towards it's 52-week high, but that will be dependent of the earnings results we get this week.  That said, this is a great stock to help diversify your portfolio and build over time into the weakness.  I estimate 2017 earnings of $5.16.  I have my multiple set to 19 because I anticipate multiple contraction in this space as rates go up, which gives a 2017 price target of $98.  Any selling done will be purely to lock in gains acquired.  PEP is 9.84% of my portfolio.


Threes:
On Semiconductor (ON, $14.14, +66.88%) - On Semi was a stock I chose long ago as a play into the tech industry.  It's a leader in power saving for various technical devices.  It completed the acquisition of Fairchild Semiconductor during the third quarter, which is meant to help expand their reach, capabilities and market share.  With the increased synergies, they should be able to increase their value.  The tech sector - semiconductors in particular - have been exploding with results from consolidation in the industry as well as some great reports from early reporting companies.  The high amount of debt the company has puts their balance sheet in some jeopardy, so this isn't exactly a best in breed stock, though.  This hasn't been an impact on the stock surging higher as we continue to hit all time highs.  In full disclosure, my downgrade of the stock has been premature.  I am not in a camp that this price surge will continue yet, though, so I can't upgrade it again.  Instead, I'm riding this rush looking for the right time to sell.  The earnings call Monday morning could be what makes or breaks the stock at this point.  Multi-year charts are very bullish with trends strongly positive in all indicators.  There are a few that are overbought at this time, but RSI isn't one of them and the MACD seems to be getting stronger.  The weekly charts are very similar, however, the strength stagnates in the dailies some.  Here, the MACD is flat and choppy, as is the RSI.  My biggest concern is how steep this run up is in the long-term charts and the historical patterns it relates to.  It's hard not to feel like we're reaching a peak in stock price, so what is said in the call will have to be very convincing.  At this time, the stock is well over my 2017 price estimate, though my estimate may actually be too cautious, given the overall environment.  I will maintain my ranking of a 3 for now because I don't have enough information to adjust my price targets except for what the analysts think.  My 2017 earnings estimate is $1.05.  I feel a fair multiple for the stock is a 13, putting the price target around $13.50 for 2017.  I see that consensus for 2017 it at $1.15, so there might be something about the Fairchild deal I'm missing.  If that's the case, that can move the upside target to $15, which is why I'm not rushing to sell the stock (along with what technical analysis tells me about my timing).  I also want to be cautious of the cyclical patterns that typically happen in this stock as we typically see the stock drop come spring time.  ON is 9.84% 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.

Sunday, February 5, 2017

Weekly Portfolio Summary

Another week of fourth quarter earnings passes as well as the continued focus out of Washington DC and yet the markets chug along.  The S&P 500 was up a tenth of a percent while my portfolio had its first week of out performance, primarily thanks to Friday.  The course of the week started with a fair amount of caution and doubt in the markets, only to be spurned by the end of the week by a series of three events.  

First, a Seattle federal judge deemed that an executive order that prevented entry of immigrants into our country has been put on hold.  While this isn't particularly important to the stock markets, it does provide some freedom of movement and gives companies something to feel more certain about (for the time being at least), regarding diversity and growth.

Second, the US non-farm payrolls report came out on Friday with a larger than expected increase in jobs.  To go along with this job growth, there was a muted growth in wages and inflation.  This indicates that the economy isn't getting too hot, and may provide less of a reason for the Fed to raise rates in March.  The forecast is at three more hikes for the year.  Another thing to note is the increase of people looking for jobs.  I'm actually surprised to not hear more about this.  I believe that with the current election solidified, a specific group of people who were feeling targeted for job losses from the great recession started feeling like they might have a chance at things and have started looking for jobs again.  If there is more job force to look for jobs out there like this, we could see inflation abated for a bit longer and interest rates to stay lower for longer.

Finally, President Trump also signed two additional executive orders.  The first is for a concerted effort to review and redraft the Dodd/Frank bill.  The second is a freeze was put onto the fiduciary standard that was to start in April.  The latter was relatively meaningless.  It buys some financial institutions additional time to try to sell retirement plans that might not be in the best interest of the investor (particularly in the middle-class) for their own profit.  In the long run, this won't matter much.  People have become more educated about low-cost fees and management, index funds, and robo advisors.  I don't believe this trend will stop because a rule was frozen.  The former, however, does have an impact on financials, and as such they popped pretty hard on Friday, with the XLF up over 2%.  The Dodd-Frank bill was put together to prevent "Too big to fail" banking institutions - the type of institutions that had to be bailed out by the government in the Great Recession.  It included numerous rules for capital levels as well as a variety of controls and checks which required a large amount of people to help ensure an organization was in check.  This impacts institutional banks the most, as less regulation should allow them more freedom to loan to people, however, it might also open the door to banks taking on more risk, which was a root of cause to the Great Recession to begin with.  Since the markets care about a company's ability to make money, this announcement was seen as a huge positive, as banks suddenly have an ability to earn more.

For the week ahead, earnings season continues, however I don't have any stocks in my portfolio reporting again.  Get prepared for the following week, though, as 3 of the 5 remaining stocks will have reported.  That said, it would be wise to keep an eye on the fourth quarter announcement from Coca-Cola on Thursday, as their results are likely to have its impacts on Pepsico shares, despite the fact that the two companies aren't the equal comparison they once were.  Solid numbers from Coke in US soft drinks could equate to a blowout quarter for Pepsico.
  
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:
Ionis Pharmaceuticals (IONS, $46.42, -10.81%) -  I chose this as my speculative stock to try to make significant gains in my portfolio.  Unfortunately, the biotechs have fallen out of favor due to a couple high-profile pricing concerns and political banter about getting costs under control.  While the group, as a whole, still isn't out of the woods, Ionis is currently faring to be in a much better position.  The company received approval of its Spinraza drug just before Christmas and Volanasorsen phase 3 data will be released during this quarter (likely shortly before they announce fourth quarter results, as this has been a pattern recently).  In addition, they've inked some partnership deals with Novartis and announced that their results for 2016 will significantly out perform their guidance.  Like Citigroup, the stock has moved a large amount in a short period of time and has since pulled back as investors both take profits and get a little more cautious.  A meeting early in the week among major pharma and bio-pharma companies with President Trump didn't yield any disastrous messages.  While they were asked to bring costs down, they were fed a promise of lower taxes to counter it, rather than calls of having to negotiate with the government.  Overall, this helped the sector lift.  Technical analysis shows relative strength for the stock in the multi-year and weekly charts, but the MACD for both needs to be watched as it's about to have a bearish crossover, however all indicators I see send it bouncing rather than crossing over.  The daily chart is a bit more negative.  RSI has been on a downward trend since mid-November, and the MACD has been bearish since about Christmas time with no signs of improvement yet.  The RSI has been working towards a trend break, but isn't there yet.  The MACD is about to break through with a bullish crossover, but it's not there.  The most interesting piece is despite the short-term down trends, the OBV stays stubbornly flat/strong.  This is usually a contrarian indicator that I believe is beginning to show reason to get into the stock.  As has been way to typical of me, I've been cautious in buying the stock - thinking I might get it lower, just to have some news event happen and send it higher.  I need to get more aggressive and willing to put up with a little more risk in a spec stock like this.  My ideal price is between $40 and $43, but I'm not sure I can get that any more.  I'll watch carefully and react accordingly.  I'm estimating a 2017 earnings target of a $0.50 loss for next year, primarily due to ramp-up costs early on.  My price target for 2017 is about $58.  Ionis is 10.84% of my portfolio.

Twos:
Citigroup (C, $57.76, +38.28%) - I've held this bank for a long time as a play off a turnaround which might be starting to happen.  Economic reports, which have been consistently strong enough to believe the Fed both can and will raise rates, which allows banks to make more money.  The recent jobs report fell in line with that with a strong increase in jobs with minimal wage or inflation gains, leaving the door open for more hikes for the year.  To provide an added shot in the arm, President Trump just issued new executive orders freezing the fiduciary standard and calling for reform of the Dodd/Frank Bill.  The former, may not mean a lot as it's becoming a demand of their customer base.  The latter has provided the likelihood for regulation costs and controls to loosen up rather dramatically.  This is one of the reasons the stocks ran since the election.  The stock remains a value, given its price is below the TBV, but that won't stop it from having pullbacks as it has been having over the last couple weeks.  The descent has subsided for now, but I'm not convinced it's done yet.  After their last report, there is some concern around their NIM estimates, though they appear exceptionally conservative - predicting no more rate hikes this year.  I'm also a little concerned in an oversupply of stock, which hopefully can be remedied by a combination of permission to buy back more stock and larger dividend payments.  Citi's charts have improved, but we're not out of the woods.  The long-term MACD is flirting with a bearish crossover and the RSI is trying to recover to a point where it is back in line with its long-term upward trend.  OBV continues to be strong, though, so this is likely a buying point for the stock (which is, sadly a little higher than I was aiming for).  The weekly and daily charts are very much in line with the long-term, with exception that in the daily charts the RSI is trying to break above its three month down trend and the OBV is trying to stop trending down as well.  The 50 DMA appears to be a level of upwards resistance, for now, but we won't test that until about $58.50.  I still am very confident in Citi's long-term upward trajectory despite the bearish pattern we see right now.  I'm targeting a 2017 TBV of $68 and am keeping my multiple at 1x TBV due to their latest report and overall market sentiment.  Citigroup is 16.19% of my portfolio.

Cedar Fair (FUN, $62.19, +11.43%) - To try to play the strengthening US consumer while also protecting my portfolio with yield, I chose Cedar Fair on the theory that people are looking more for fun experiences to put their money as they feel more comfortable with an improving economy and lower gas prices.  2016 resulted in record sales and there isn't anything, at this point, that has management believing the trend is changing.  They continue to expand their Christmas celebrations and also look to expand or improve on hotel experiences as much of their attendance comes from a wider radius.  This year, the company feels confident that they will continue to see growing EBITDA as they target to make $500M in EBITDA a year faster than originally targeted.  When looking into the technicals, I see signs of a pullback coming in the multi-year view.  The MACD is about to have a bearish crossover and it seems the RSI has gone and dipped below it's multi-year down trend.  OBV is maintaining strength, though, so I'm not expecting major shifts.  There are similar indications in the weekly charts with the MACD about to cross under while the RSI is flat and OBV is strong.  The price has dipped below the 50 DMA as well.  Finally, the MACD is ugly in the daily charts, as is the RSI.  The OBV is still flat.  I'd say that my downside risk is still in the $57 - $60 range ($60 is the 200 DMA whereas $57 provides 6% yield) and odds are you're going to want to buy in more if prices reach this range.  I estimate 2017 earnings of $3.57 and with a multiple of 18, the 2017 price target is $64.25.  I'll have to wait until earnings are released before I can make any adjustment to these targets.  Just another reason why I feel the upside is limited for now.  Cedar Fair is 15.98% of my portfolio.

Home Depot (HD, $137.98, +122.10%) - I chose this stock as a play on the housing and retail industries, expecting positive results from people taking advantage of an improving economy and home prices to invest in home building and improvements.  While Home Depot's results have backed my expectations, the stock hasn't performed in suit. I had to downgrade the stock because it got to a point where I felt the price posed more risk than I cared for.  Since then, we've been in more of a chop with the price oscillating in the $131 - $137 range, but now appear to be starting to break out on some positive news from home builders and the fact that a mostly local company, like Home Depot, is virtually safe from the protectionist and anti-trade commentary we've been hearing from the new President.  The company is executing on its plan, taking share, and expect same store sales comps of 5%, which is pretty incredible for a company that isn't opening more stores.  I have a feeling the fourth quarter earnings call and 2017 guidance will be key, but they're quite a while away yet.  In the mean time, the charts are showing a change in sentiment.  We see some supporting strength in the multi-year charts via a bullish MACD and a RSI that has changed trends for the positive.  Be careful of some indicators reaching into overbought territories already, though.  This could be an explanation to the minor pullback in price from last week.  Meanwhile, the weekly charts have a very bullish MACD, RSI, and OBV.  Things are rougher in the daily charts as the MACD is chopping back and forth over its crossover line and the RSI and OBV stay fairly flat.  Overall, trends are starting to look more positive as we see price patterns now filling out an inverse head and shoulders, the 50 DMA crossed above the 200 DMA, and the MACD has become increasingly bullish in longer term views.  There still seems to be near-term risk as I'm a little concerned over the run the stock has had as we approach the next quarterly results, however, the stock is basically priced about the same as they were when they announced last quarter too.  $139 is the breakout level that it appears we need to get through for this run to have legs.  It may take the quarterly report to do that (or turn us away from it).  I estimate 2016 earnings of $6.34 and 2017 earnings of $7.10.  I estimate a multiple of 22, giving a 2017 price target of $156.  I think this is a great company and operator, and you may want to consider picking up stock now or on any pull backs.  HD is 12.89% of my portfolio.

Honeywell (HON, $119.19, +181.56%) - I continue to believe that this company is best of breed in the industrial conglomerate sector.  It does a great job of spreading itself across short, medium, and long-term cycles, has a significant play into the aerospace cycle (commercial airplanes being a primary focus), and they have a management team with a track record of excellent execution..  Aerospace division continues to be an area of concern lately with private jets, helicopters, and defense spending lagging expectations.  Management expect a second half turn around in 2017, so we're not out of the woods yet.  Previous spend was anticipated to help build a customer and repair base that will result in better earnings down the line.  I feel another factor has been the announcement of CEO Dave Cote stepping down in March.  Dave has been an exceptional leader since he took the helm of the company over 10 years ago, resulting in a company with spectacular performance and consistency.  I believe he's handing the reins over to a CEO capable of continuing the vision he has set, but that is what's going to be watched closely in 2017.  Earnings were basically in line with no earth shattering news and no adjustments from guidance provided in December.  Taking a look at the charts, we see that the stock has taken quite the charge since the "disappointment" in October.  The stock continues to move up gently and pretty much all indicators from multi-year to daily support this move.  I have noted in all of these charts that some of the indicators are starting to stretch into overbought territory, so we are reaching a point where we may start seeing some chop or a pullback. The MACD in the daily chart is chopping back and forth over a downward trend line as well, which is a little concerning for a stock price that has been going up.  Additionally, the stock is now hitting 52 week highs and its ability to maintain it might be a major event for the stock.  Oddly enough, the long-term charts look a little more like the stock is ready to break out while the daily charts are indicating a small pullback may be eminent.  I anticipate 2017 earnings of $7.10 - anticipating that the company is currently being particularly cautious.  I also think industrials are going to be able to fetch a stronger multiple if the economies of the world really do start firing on growth.  Thus, I have set the multiple to 18, resulting in a 2017 price target of $128.  HON is 16.71% of my portfolio.

Pepsico (PEP, $105.11, +45.39%) - The epitome of a safety stock, this consumer packaged goods (CPG) company is in my portfolio not just for the safety it can provide when the stock market takes a dive, but also because the company has been performing extremely well on its promises.  It's currently one of the best CPG companies in terms of organic growth after third quarter results.  I had to downgrade the stock to a 2 based on the recent rise in prices we've seen.  After such a downtrend for Pepsico and CPG companies, I'm a little bit confused as to how/why it appears things are turning in favor of these companies again.  Some of it may be related to a push into volatility safety with the varying degrees of conflict arising from moves out of Washington DC, but that doesn't seem right.  After the jobs report, there seems to be more comfort around job growth with minimal wage growth as well, leading people to think the Fed may not hike again in March (I don't agree with that sentiment right now).  The only other thing is fourth quarter reporting that has come in, but that's been relatively mixed among the CPG companies.  On top of that, the stock has risen 5% in the last 3 weeks or so and given that Pepsi doesn't report until next week, it leaves me feeling a bit more cautious in the short-term.  Shifting to the charts, as I hinted, there appears to be a turn starting to take place.  The MACD has bounced and stayed bullish on the daily charts while the weekly and monthly both look about to do a bullish crossover.  The RSI has started rebounding and is about to push through longer-term down trends that it has been following.  The price has crossed the 200 DMA on the weekly charts and is just about to do it on the dailies.  If the prices and other indicators cross above all of those trends, it could be setting up a new floor for the stock.  I think that's what we'll be watching this week.  This is the point where the stock may break out and try to push towards it's 52-week high, or we'll find the resistance trend take over and start to send things back down.  That said, this is a great stock to help diversify your portfolio and build over time into the weakness.  I estimate 2017 earnings of $5.16.  I have my multiple set to 19 because I anticipate multiple contraction in this space as rates go up, which gives a 2017 price target of $98.  Any selling done will be purely to lock in gains acquired.  PEP is 9.82% of my portfolio.

Threes:
On Semiconductor (ON, $13.94, +64.52%) - On Semi was a stock I chose long ago as a play into the tech industry.  It's a leader in power saving for various technical devices.  It completed the acquisition of Fairchild Semiconductor during the third quarter, which is meant to help expand their reach, capabilities and market share.  With the increased synergies, they should be able to increase their value.  The tech sector - semiconductors in particular - have been exploding with results from consolidation in the industry as well as some great reports from early reporting companies.  The high amount of debt the company has puts their balance sheet in some jeopardy, so this isn't exactly a best in breed stock, though.  This hasn't been an impact on the stock surging higher as we hit $14 last week, which are all time new highs.  In full disclosure, my downgrade of the stock has been premature.  I am not in a camp that this price surge will continue yet, though, so I can't upgrade it again.  Instead, I'm riding this rush looking for the right time to sell.  That time may not be until after their mid-February earnings report, as the charts are extremely bullish.  Daily charts show OBV and RSI trending positively, but the MACD is a bit choppy on a bullish trend line.  Momentum turned its trends around, which just adds fuel to the fire.  The weekly charts are just as positive.  The OBV and RSI both are trending upwards and the MACD is still bullish, though weakly so.  Momentum here has regained strength from its lower levels as it appears the breather has created more strength.  Additionally the multi-year view shows similar strength in the indicators like the weekly charts.  There are a few indicators in overbought territory, so we may see the stock start to pause from its ascent, but these indicators can stay overbought for awhile too.  At this time, the stock is well over my 2017 price estimate, though my estimate may actually be too cautious, given the overall environment.  I will maintain my ranking of a 3 for now because I don't have enough information to adjust my price targets except for what the analysts think.  My 2017 earnings estimate is $1.05.  I feel a fair multiple for the stock is a 13, putting the price target around $13.50 for 2017.  I see that consensus for 2017 it at $1.15, so there might be something about the Fairchild deal I'm missing.  If that's the case, that can move the upside target to $15, which is why I'm not rushing to sell the stock (along with what technical analysis tells me about my timing).  I also want to be cautious of the cyclical patterns that typically happen in this stock as we typically see the stock drop come spring time.  ON is 9.77% 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.