Friday, July 11, 2014

Weekly Portfolio Summary

It's been awhile since I've posted an update like I'm "supposed to."  Not time for being lazy now, though.  Earnings have started and next week is the kickoff for various earnings in my portfolio, with both Citigroup and Honeywell reporting.  That means it's time to get prepared for more work.  Outside of the earnings, I've taken a breather to try to have a clear assessment of my portfolio year-to-date.  I'm not very pleased with the results and I'm not pleased with how many holdings I have.  My target number of holdings is 5 with room to grow to 7 or 8 if I'm holding on to winners I've taken my cash out of a double, or in situations where I'm adding to a new stock as I'm pulling out of another - to which I don't have the cash position to execute either (Big problem I should be fixing).  As I go through earnings, I'll have to pay attention to all of these problems and use the information I gain to find a new, hopefully more prosperous path.  So let's dig in and figure out a plan.

We kick things off bright and early on Monday when Citigroup gives its earnings.  I'm actually expecting something a bit lack-luster considering interest rates are down.  The analyst community is currently looking for $1.18 earnings on $19.1B in revenues.  Both are lower than a year ago and it's possible that the continued pressure on the Net Interest Margin will already be priced in.  Any positive or surprising news and the stock may pop.  The other key thing to listen for will be comments around Stress Test findings and what impact it has on their future plans.  This stock has been range bound between $45 and $48.  It's probably been a mistake to hold, but I have done so up to this point.  Banks will be the right place to be when interest rates rise, but how long will it be before that happens?  If this had a good dividend, waiting wouldn't be as painful and this is the trouble I face

On Friday, Honeywell will have their conference call for their second quarter.  The analyst community expects the company to report $1.36 earnings on $10.2B in revenues.  Given Honeywell's track record lately, I believe they'll beat the earnings estimates at a minimum.  Depending upon how strong business is, there's a chance that we could get raise of earnings expectations as well.  The stock is up only 3.2% compared to 6.3% for the S&P and the stock has been taking a breather - trading between $90 and $95 since about March.  This could be what charges the stock forward again.  I also see the possibility of a dividend increase announcement.  The stock is currently at about 1.9% yield, which isn't bad and isn't great for an industrial conglomerate like this.  If the company misses, I don't think a 5-10% pullback is out of the question.  The real key here is future growth.  If the economy is continuing to slowly gain steam as jobs reports and various other indicators seem to be showing, this stock will continue to have legs until interest rate increases become a problem - and that problem is quite awhile away yet.



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.

Ones:


Twos:
Broadwind Energy (BWEN, 8.53) - The stock has pulled back somewhat significantly over the last few weeks on lower than normal volume.  What I believe we're seeing here is the doubt of the future earnings of the company and it came faster and harder than I have expected as we've already pulled back about 25% from the stocks highs.  The fact that the Russel 2000 has been pulling back isn't helping matters, as I'm sure ETFs will only add selling pressure.  Technicals are not favorable at this point, though we may be approaching a bottom.  The next conference call is going to be a very important inflection point from what I can tell.  As will continued efforts to get the PTC extension in place before the end of the year.  I've lowered my price target to $10 due to uncertainty of where the stock is going as well as how strong the wind business will continue to be going into next year.  BWEN is 3.25% of my portfolio


Deere & Company (DE, 88.53) - How do I describe this stock?  Difficult is the word that comes most to mind.  Maybe another description is it's the Zen stock of the market - for every ying, it has a yang.  It's so balanced with good and bad that the stock has been range bound for well over a year.  When it comes to valuation, the stock is obscenely cheaper than its peers.  The down side, though is that their earnings and revenures are now decelerating from where they were just a year ago.  Despite earnings and revenue decreases, the company continues to beat earnings estimates due to increasing gross margins.  Finally, the price of corn is dropping hard in the last couple months.  Truth is, It's a little surprising the stock has held as well as it has considering corn price declines.  Its 2.7% yield and cheap value are likely reasons people are sticking this out as they wait for the economy to boom.  The stock is much more attractive to buy in the mid-lower $80s.  DE is 11.8% of my portfolio.

Home Depot (HD, 79.61) - Stock took a hit this week due to a bad report from Lumber Liquidators.  This has caused people to start claiming that the housing and remodeling movement is slowing down.  This company still has long term prospects.  It's earnings have been accelerating and the economy continues to show signs of strength. It has pulled back to 16 times it's guided 2014 earnings (I'm actually expecting them to earn $4.50 instead of the 4.32 they've guided).  Great management team that knows how to take the competition on. The stock has been suffering due to a retail sector that has been suffering.  Need to watch housing data as well as reports from other housing related stocks as they come up over the next few weeks.  If the story is intact, we're fine.  If the story is changing, I need to change and get out with the winnings I have. Target price is $86.  HD is 10.6% of my portfolio.

Honeywell (HON, 94.90) - Another solid quarter posted by this Industrial conglomerate.  Margins continue to improve, they've raised the lower end of their guidance and almost every division appears to be properly aligned to the current economic state of the world.  The analyst community could be starting to get ahead of the company, though, as their fiscal year earnings estimates are right at the top of the guidance range.  If anything goes wrong, this stock could get hit pretty hard and that would be your best buying opportunity.  The stock trades near 17 times earnings which P/E is below its peers while its growth rate appears to be ahead of their peers.  This, too, should provide a little protection.  That all being said, industrials get hit when there's fear in the markets.  All stocks would get taken down regardless of performance and create buying points.  I believe this is especially so for Honeywell as so much of their businesses focus on saving costs when energy prices go up..  My target is $100.  HON is 19% of my portfolio.

NPS Pharmaceuticals (NPSP, 30.28) - The buyout rumors have subsided and with it, the stock has started dropping some again.  The company continues to sell product, but last quarter was a little disappointing.  We'll have to see what happens in the next quarter and watch as their application for their new drug goes through the FDA in the third quarter.  Another large risk is that the 40 and 20 week averages have converged - in fact it may have given the kiss of death cross-over.  If the 20 crosses over the 40, it's time to take your gains and run.  $40 has been and continues to be my price target, but I am not convinced we'll see that price in 2014.  Maybe 2015 instead.  NPSP is 14.1% of my portfolio.

On Semiconductor (ONNN, 9.12) - ONNN beat on Q1 earnings, but missed on revenues.  Forward looking guidance seemed positive and the second quarter revenue estimates are near the lower end of guidance right now.  The stock got crushed, and I believe, unjustly so.  In addition to this, they just announced the purchase of another imaging company - clearly planning to get a stronghold in the use of cameras for Autos with this purchase.  I think this stock is currently providing room for a 10-15% pop while downside is likely in the 5% range.  That being said, it has risen rather significantly since it was beat up, and therefore I only recommend buying on a pullback.  The semiconductor index, as shown by the SOX, is showing a breakout to new highs, but On has been getting left behind.  This is a bit concerning.  This stock has been difficult and should I decide to raise cash, this will likely be one of the first places I go to get it, despite my feeling that this stock is going higher.  My price target remains at 11.50.  On Semiconductor is 6.1% of my portfolio.

Threes:
Citigroup (C, 47) -   Citigroup continues it's display of no action and range-bound activity as I have expected it would.  The banking sector has been hit as Wells Fargo gave it's earnings report and in anticipation to a bad quarter.  I don't expect much from Citi on the quarter, but at the same time, I think most of the potential bad news is priced into the stock.  I believe there's more upside than downside to the stock at this point, however, I also don't see many catalysts to start making the stock move forward.  This makes the stock a likely option for raising cash.  I give C a $51 target, but I expect it'll be some time before it gets there..  Citi is 9.4% of my portfolio.

Encana Corporation (ECA, 21.85) - Encana's stock price has been suffering for reasons similar to Deere.  Oil and Natural gas prices have been falling hard and fast since mid-June.  I have a loss on this stock and what it's gone up the last few months has been a nice recovery on that loss, however, I may have overstayed my welcome.  The 2nd quarter conference call is on July 24 and it can't come soon enough.  I'm expecting a solid beat on expectations and appropriate hedging to have been placed to help lock prices for at least this year if not half of next year as well.  This should help pop the stock and only the future forecast can help determine if that will be the spot to get out, or whether this will charge further ahead.  I'm lowering my price target to $24 on pricing concerns.  ECA is 12% of my portfolio.

Pepsico (PEP, 89.95) -  Pepsi is one of the few stock I can say are beating the S&P 500 year to date and I'm kind of surprised of this.  The company and the leadership is of high quality, but I expected this one to be hurt more by raising interest rates that never came to fruition.  The company has created more shareholder value by raising the dividend from 57 to 66 cents per quarter as well as increasing their buyback plans.  Organic growth is on the rise again, but 7% growth isn't a lot in an environment with an improving economy.  Input costs are going down and I expect this and the stock's yield to be a tailwind into the second half of the year, but I anticipate a point where this stock becomes less favorable and replaced for industrial stocks with more growth potential.  PEP is 9% of my portfolio and my price target is raised to $90.  Because the stock is near my price target and due to anticipated headwinds and sector rotation in the future, I have put this stock in the threes - despite my liking the company and management.