Sunday, September 28, 2014

Weekly Portfolio Summary

Rough week for stocks as a lack of significant earnings related news combined with continued news about the Fed quickly raising rates, the Russia-Ukraine conflict, and how the Alibaba IPO was a sign of a top in the market ran non-stop.  Overall, stocks were beat down with a reckless abandon, no matter the story or sector.  Honestly, I expect another week of that next week, unless some sort of big news story hits to take away one of these factors.  All in all, my guess is that we see the markets pull back a good 5% from the recent highs.  Despite all the doom and gloom we're hearing, the S&P 500 is about 2% off of its highs.  The first big news that could impact stocks is coming on Friday, then the following Wednesday is when the next round of earnings seasons kicks off to bring real news regarding company's future outlooks.  Don't get me wrong, the outcomes on the recent quarter will matter, but in reality, it's the outlooks that will determine where stocks go from here.  There are a lot of fears getting pent up regarding weakness everywhere but the US and it's those fears that are giving the down trend fuel to take power.  Conviction is weak and unless there is evidence that things aren't getting worse, the market will pull back.

For the week ahead the big deal to watch is the September jobs number that will be announced on Friday.  Last month's numbers were atrocious.  If this month's number isn't strong enough, I believe the S&P 500 will quickly pull back as much as 10%, much less what a longer trend might look like.  Don't expect the market to wait until Friday to respond either.  I think this number is going to be so watched that hedge funds are going to be making bets on the results possibly all week long.  That could create for a week full of volatility, or maybe even strong downside as people guess the worst will happen where even the US economy is slowing based upon a reduction in the rate of new hires.  If the latter happens, but we get a good jobs number, I expect Friday to be a strong up day.

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:
Ensco PLC (ESV, 42.46) - Deep water driller that appears to continue to get hit on concerns of reducing revenues and a stronger dollar forcing the oil prices down.  In addition to this, I've also learned that supply is a concern as more new rigs are being put on the market.  The stock sells at around 8 times 2014 earnings, however, earnings expectations over the next couple years are on a slight downtrend.  From my ownership of Deere, we know how this can impact the stock.  The company shows signs of a turn around, though, as it's beaten expectations each of the last 2 quarters.  They also have one of the youngest fleets which gives them a technological edge.  With the supply issue now in front of me, this technological advantage is going to be key.  I have been too aggressive in my purchase of this stock and will have to wait awhile before I buy more.  Signs of a true bottom, maybe even a reversal will be key.  Balance sheet is strong and they have no sign of issues paying their healthy over six percent yield.  Given the growth in the markets the last two years, I wouldn't be surprised that next year might be more difficult to reap gains and the yield will be all the more important to me, so long as the stock doesn't plummet more than I can handle.  Oil prices and fleet supply in the market will continue to be weighing factors to stock performance.  It will take a turn around in oil price as well as demand and/or time to see that Ensco's technology gives it a superior position in the market..  My target price is $58 on 2014 earnings of $5.85.  Ensco is 12% of my portfolio.


Twos:
Broadwind Energy (BWEN, 7.82) - The stock crashed through the $8 floor I had been counting on for support with no news to call out why.  I believe the impact is a direct correlation to the fall in oil and natural gas prices.  As fossil fuels become cheaper, alternative energies become less of a necessity and lose their advantage regarding cost to produce benefits.  This along with an awaiting PTC bill that has to get through a lame duck congress in the fall give people worry that this stock and the company can maintain performance.  I have not done well with this stock at all, but am also looking for more details.  It's becoming too hard to own this stock and I might decide to just take my losses and run.  Current price target is $10.50.  BWEN is 5.6% of my portfolio


Home Depot (HD, 92.84) - The size of the risk is now declared at 56 million cards.  Corrective measures have been taken, the company's insurance should cover most of the cost risks associated with the breach.  To top this off, the company also raised guidance on the year, to $4.54, less than one month after their last guidance raise.  To me, this speaks volumes as they may be through only half of the third quarter and stated that September sales gave them confidence to raise the target.  I don't expect the bad news about the breach to stop anytime soon yet.  Those stories will likely hit the stock and create further buying opportunities.  Without a doubt in my mind, this company and stock has earned a chance to speak before you sell.  I've reiterated my earnings guidance for 2015 to $4.55 and have what I believe is a conservative estimate for 2016 of $5.23.  This latest raise gives me reason to believe not only will my target for 2015 be reached, but potentially surpassed by a penny or two.  I'm also expecting them to raise the dividend by at least 20% next February to $2.26, or more depending upon earnings.  All of these factors have me raising my price target price to $110 with an 18 month outlook.  HD is 12.4% of my portfolio.

Honeywell (HON, 93.30) - Honeywell had some of the best earnings among their peers.  After a fallout with industrial stocks, this one has been on a nice comeback since hitting ninety dollars and change.  The biggest headwind appears to be that this is an international company.  A stronger US dollar makes it much more difficult to beat earnings on a Dollar basis.  I get a feeling we might be seeing only a pause in selling at this point.  I have too much stock to buy more and my basis is way too low.  I still believe this is a stock worth moving forward with and if you weren't holding any, I'd buy some as we hit around $90 or below.  My 2015 target is $110.  HON is 19% of my portfolio.

NPS Pharmaceuticals (NPSP, 27.55) - There are a lot of concerns that the October 25 FDA decision is going to get delayed.  History states that's extremely rare, but if it does happen, this stock could drop into the lower 20s.  On the flip side, if everything moves forward there's a lot of room for upside on the table.  Long term target remains at $40, but it won't get there until the fourth quarter at the earliest and more likely not until 2015 instead.  NPSP is 13% of my portfolio.

Pepsico (PEP, 93.13) -  I don't expect much more from this stock until it announces third quarter results later in October.  The company has created more shareholder value by raising the dividend from 57 to 65.5 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.  For now, I have a feeling Pepsico will just build a base around the $90 point as it has been the last few weeks.  PEP is 9.4% of my portfolio and my price target is $102 for 2015 on an estimated $5.10 of earnings.

Threes:
Citigroup (C, 52.49) - Until they announce earnings in mid-October, Citi's stock movement will be influenced mostly by the 10-year treasury yield.  Over the last few weeks, it's been on the rise, but I suspect that after the Fed's meeting this week, rates will start to decline some more.  This week's rates influencer will be the September Jobs number.  However, there's a lot of speculation that Bill Gross leaving PIMCO for Janus, which was announced yesterday, is going to force PIMCO to sell a number of bonds and that will cause rates to rise.  Both are items to watch.  My price target for Citi remains at  $55, which is still under the tangible book value as of the end of the second quarter.  This being said, I'm becoming more bullish on the stock and believe I'm starting to see growth potential - especially as it's now pressing  the $53 technical resistance it's had for so long.  I'm hoping to hear more in the third quarter that can help me prepare a better picture of what 2015 will look like.  I'm much more in favor of holding Citigroup as it has a strong floor around $47.  It's also been dead money, though, as it stays in this tight $47-53 range so I'm keeping the rating of a three for now.  Trade around your core position, if anything, here.  Citi is 10.5% of my portfolio.

Encana Corporation (ECA, 21.13) - Encana continues to get battered because oil and natural gas prices continue to fall.  This is why I sold some of my position and has me wishing I sold more.  Because results are so mixed and I don't have any patterns I can model differently than I've just stated, I maintain my $1.50 earnings estimates for 2014 and have a price target of $25 - just under 17 times earnings.  If commodities stabilize and the stock has pulled back a bit, I might be more interested in upgrading/buying.  I could also sell out for another stock with more yield protection and upside potential.  ECA is 5.7% of my portfolio.

On Semiconductor (ONNN, 9.32) - There has been a fair amount of pressure in the tech sector of late - especially semiconductors.  I believe future demand when there's usually so much dependency on international markets is a factor.  Add into that the additional downgrades we've seen on the stock from analysts and the stock suffers some more.  I've learned a lot while managing this stock, however, it's a very small portion of my portfolio and I'm looking to reduce my count in holdings.  Additionally, I feel this stock is getting too difficult to own. My price target remains at 11.50, but I have downgraded the stock to a 3.  I hope to sell between $9.50 and $10, but I'm not sure I'll be able to pull that off.. On Semiconductor is 6.2% of my portfolio.