Weekly Portfolio Summary
To say last week was bad might be akin to saying putting salt on a wound tickles. Pain, blood, and panic might be words often heard when describing what's happened in the markets and none of those words should give you the warm fuzzies. All we heard this week was how the world economy was getting worse everywhere. Europe is going back into a recession and Draghi did nothing to help it during his comments, China continues to slow, Russia keeps looking for more sanctions against its country, Brazil and Argentina are falling apart. Well, you get the idea. You get this, an increase of IPOs creating more supply again, the US dollar continuing to climb and you get mass selling. Apparently, we've even had at least 1 hedge fund go under, causing even more mass selling as they liquidate. All things stated, there is a small, glimmering silver lining that could help our future progress. The US non-farm payroll report for September was stronger than anticipated and the jobless rate is now below 6%. On top of that, the inflation rate was 0. This makes all of the talk about the Fed raising rates and how awful that will be for the market to subside, for now, at least.
On the forefront, we are also leaving the news-lacking period before earnings season as the cycle of reports begins on Wednesday when Alcoa reports. I don't hold shares of Alcoa, but it will still be a key conference call to spend time listening to. It will really help set the tone as to what really is going on in the industrial world as CEO Klaus Kleinfeld does a great job of breaking the business down and aluminum is used so widely. This is the only conference call I will really focus on, but news as to how people that do report next week go will be something to continue to watch. Don't get me wrong. I'm not saying this silver lining makes me certain the market isn't going to keep going down right now. But a change in focus from political and Ebola news to real earnings numbers and forecasts has the potential to change sentiment. That being said, I wouldn't be the least bit surprised stocks go down more. Despite the up day on Friday, I just don't feel it was a strong up day. My portfolio significantly under performed, though that could be me. The breadth of the up trend just didn't seem to be there though. There are certain areas that should do well in this market, but don't be too hasty. And if you're not prone to shifting your portfolio a lot to meet the market's short-term trend, you will need patience and a lot of pain resistance. Know when to cut your losses (something I still seem to struggle with).
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 the forefront, we are also leaving the news-lacking period before earnings season as the cycle of reports begins on Wednesday when Alcoa reports. I don't hold shares of Alcoa, but it will still be a key conference call to spend time listening to. It will really help set the tone as to what really is going on in the industrial world as CEO Klaus Kleinfeld does a great job of breaking the business down and aluminum is used so widely. This is the only conference call I will really focus on, but news as to how people that do report next week go will be something to continue to watch. Don't get me wrong. I'm not saying this silver lining makes me certain the market isn't going to keep going down right now. But a change in focus from political and Ebola news to real earnings numbers and forecasts has the potential to change sentiment. That being said, I wouldn't be the least bit surprised stocks go down more. Despite the up day on Friday, I just don't feel it was a strong up day. My portfolio significantly under performed, though that could be me. The breadth of the up trend just didn't seem to be there though. There are certain areas that should do well in this market, but don't be too hasty. And if you're not prone to shifting your portfolio a lot to meet the market's short-term trend, you will need patience and a lot of pain resistance. Know when to cut your losses (something I still seem to struggle with).
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, 38.26) - If you're a sadist or you're stupid, invest in the deep water drillers. That's about where I am here right now. This stock is down huge in the short time I've had it and I don't see signs of it improving. The concerns continue to grow - Saudi Arabia isn't reducing production, they're lowering prices so they can maintain market share. Not sure if this is temporary or a sign of bravado, but either way this along with the increasing US Dollar just make this stock drop like the mafia gave it cement shoes and thew it in the Hudson. The stock thew a head-fake on Thursday with high volume and a trend reversal during the day. Every metric you look at says the stock is over sold, but even the strong jobs report couldn't get it to move. I've hear a comment that poor performing stocks are hard to get into in the 4th quarter because large firms try to get out of bad performers so they can show how they're making good picks. If this is true, the stock may continue to fall down to a 10% yield - $30 by the end of Dec. I bought way too much too early, but I'm not all in. Though the drop stabilized between Thursday and Friday, it's a falling knife and you're best off not grabbing it until you know it's hit a floor. Maybe that will be soon, maybe that'll be Christmas time. Either way, don't buy unless you have a true sign of capitulation and be careful the head fakes. My target price is $58 on 2014 earnings of $5.85. Ensco is 11.1% of my portfolio.
Ensco PLC (ESV, 38.26) - If you're a sadist or you're stupid, invest in the deep water drillers. That's about where I am here right now. This stock is down huge in the short time I've had it and I don't see signs of it improving. The concerns continue to grow - Saudi Arabia isn't reducing production, they're lowering prices so they can maintain market share. Not sure if this is temporary or a sign of bravado, but either way this along with the increasing US Dollar just make this stock drop like the mafia gave it cement shoes and thew it in the Hudson. The stock thew a head-fake on Thursday with high volume and a trend reversal during the day. Every metric you look at says the stock is over sold, but even the strong jobs report couldn't get it to move. I've hear a comment that poor performing stocks are hard to get into in the 4th quarter because large firms try to get out of bad performers so they can show how they're making good picks. If this is true, the stock may continue to fall down to a 10% yield - $30 by the end of Dec. I bought way too much too early, but I'm not all in. Though the drop stabilized between Thursday and Friday, it's a falling knife and you're best off not grabbing it until you know it's hit a floor. Maybe that will be soon, maybe that'll be Christmas time. Either way, don't buy unless you have a true sign of capitulation and be careful the head fakes. My target price is $58 on 2014 earnings of $5.85. Ensco is 11.1% of my portfolio.
Twos:
Broadwind Energy (BWEN, 7.71) - 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 5.7% of my portfolio
Broadwind Energy (BWEN, 7.71) - 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 5.7% of my portfolio
Home Depot (HD, 93.54) - The data breach is currently taking a back seat. As a US and retail company, this is the one stock I have that really plays into what works in the current market. The risk becomes if consumers start spending a lot lest and/or the economy starts to falter. Management provides confidence by increasing their 2015 estimates, but I still expect to hear some bad news about the breach along the way. 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 13% of my portfolio.
Honeywell (HON, 91.71) - As part of a global industrial sector of the market, Honeywell has been hit by the overall sell off. That said, it has held its $90 floor nicely so far. 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 don't see a lot of short-term upside outside of when they announce earnings in a couple weeks. 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, 23.97) - Despite being a biotech that should hold well in this market, it's getting murdered. 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. I'm also wondering if there is a sell off because they are trying to expand their sales into Europe at a time of recession. If that's true and/or if everything moves forward there's a lot of room for upside on the table. We are only three weeks away from the all important FDA decision. I'm considering buying some more as a trade on the FDA decision around the current price, but I haven't decided. It's frankly a dice roll and I can lose just as easily win. 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 11.6% of my portfolio.
Pepsico (PEP, 93.50) - 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 9.7% of my portfolio and my price target is $102 for 2015 on an estimated $5.10 of earnings.
Threes:
Citigroup (C, 52.32) - 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 10.9% of my portfolio.
Encana Corporation (ECA, 21.15) - 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 5.9% of my portfolio.
On Semiconductor (ONNN, 8.95) - 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.
On Semiconductor (ONNN, 8.95) - 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.
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