Weekly Portfolio Summary

A holiday shortened week has passed us, but it was anything but a slow week - at least for my portfolio, which easily under performed the S&P 500.  The primary cause for the lack of performance?  My energy sector holdings got taken to the back forty and shot not once, but at least twice for good measure.  First SeaDrill announced their third quarter on Wednesday and wiped out their dividend, which was well over 10% going into the quarter and was regarded to be dangerous.  Despite this, it didn't stop anyone from taking it, and anything related to it, back to the wood shed.  Then on Thursday, OPEC had their meeting and as I had started to expect, stated that they would not be slowing their production numbers at all.  Apparently this surprised traders and energy related companies were beaten down again, as was oil.  Anything that has any correlation to oil and gas going down being a negative is being hit hard.  This includes alternative energy and other industrial, chemical,or agricultural stocks that use higher energy prices as a reason to drive their own prices higher.  Likewise, many stocks that are perceived to benefit from lower oil - retail, restaurants, transports - are jumping higher.  All of this just in time for a Black Friday which has been appearing to be quite strong this year.

In the week ahead, we have Cyber Monday and the results from the first holiday shopping weekend to determine if retail is continuing to look strong.  The other major event will be on Friday, as we hear the results from the November non-farm payroll report.  Truth is, I expect a lower than expected number, namely because of the early and extreme cold and snowstorms that plagued various areas of the country during the month.  Outside of this, I expect the trend I've already explained to be the main driving story as we continue.  Oil will be volatile, as will the stocks related to it.  A bottom could get put in, but right now it's best to play cautious and not try to catch the falling knife.  The chart I showed last week is still in play as the S&P stayed along the the top line of the channel it's been in.  I feel like it'll stay this way for a little while, but I am concerned about the disconnect we're seeing in the S&P 500 compared to energy stocks.  Energy is currently about 8.4% of the total index, and though in the lower half of the index's sectors, I still expect it to have some drag on the overall market.  We'll continue to watch this as it develops.

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, 33.80) - This stock continues to be bound by the fate of oil.  First competitor SeaDrill dropped its dividend and now with OPEC's announcement to continue production at current rates, the stock has now taken out new lows.  While I believe the dividend for Ensco is still safe, having a strong balance sheet, $11B in backlog, and has already taken moves in preparation of these kinds of events, the stock will still fall with its brethren.  I do feel that this stock is becoming a real value play, however, this is not the time to pull the trigger.  There's still more downside risk and until oil stabilizes, I don't think you should make a move despite my ranking.  My target price is $52 on 2014 earnings of $6.54 (personal estimate).  Ensco is 9.4% of my portfolio.



Encana Corporation (ECA, 15.78) - I had to upgrade this stock due to the vicious pounding it took this last week.  With all the news I've previously stated, this company was also in the line of fire, despite being primarily a Natural Gas play.  It has sold off to lows we haven't seen since 2003, before the company split off its oil play.  While gas prices did go down this last week, I believe this company has been thrown out unjustly.  The balance sheet is much stronger than it was, the company has balanced it's gas vs. oily plays, and its production has been focused to very high margin growth areas.  The risks I do see is that it doesn't seem the company has hedged any of its production against this drop in prices combined with how the drop in prices may become significant enough that they'll also decide to reduce production, counter to what they said at their third quarter meeting.  Again, just because I think this stock is unfairly priced doesn't mean go out and buy more right away.  Oil and gas needs to show stabilization we can trust.  All things being equal, I'm still maintaining estimates of no growth next year until I learn more - using analysts 2014 earnings estimates of $1.69 for 2015 as well and assessing a multiple of 14 to be relatively fair for the company.  That puts my price target at $23.50  ECA is 4.2% of my portfolio.

Twos:
Broadwind Energy (BWEN, 6.96) - Drops in energy prices weighed on this company as their sales are driven by both a need for alternative energy in the face of high oil prices as well as a high demand of their gearing services being driven from the oil patches.  With lower oil prices, you get lower production which means lower maintenance needs.  That being said, I believe the primary thing in focus as we head into December is the passing of the PTC extension.  Right now, I can't say I feel confident that it will get passed.  Republican-led senate and congress aren't likely to care a lot about alternative energy.  This is contrary to what Broadwind management has been saying and puts the stock at more risk.  An important thing to note, and something I've been waiting to see, though, is that the CEO, Peter Duprey, made an insider purchast back on October 31.  A purchase of 10,000 shares at $6.51.  While this isn't a huge purchase, it may be enough to draw a line in the sand and help put a floor in the stock.  My current price target is $10.50, however, not only am I not sure that these risks will allow it to happen, but I also believe it's going to force me to lower my target if the risks become a more permanent truism.  BWEN is 4.9% of my portfolio

Citigroup (C, 53.97) - I've focused too much on the short-term factors to this stock.  We continue to see regulation and legal issues as the government appears to look for any way to drain more money from the banking sector.  All these negatives happen and the market shrugs them off and the stock rises some more.  Looking forward, we have a global bank that has World economic turn around, dividend distributions, and the potential of interest rates climbing all as future catalysts to a stock that isn't even trading at it's book value yet.  My 2014 price target for Citi remains at  $55, which is still under the tangible book value as of the end of the third quarter.  We've crossed the range we seemed to have been stuck in and I now project a book value of $61 by the end of 2015, which will also be my long-term price target.  Citi is 10.7% of my portfolio.

Home Depot (HD, 99.40) - After strong reports from both Home Depot and competitor Lowe's, the stock has been on the rise.  Add into that the strongest retail season of the year with lower gas prices and you have a stock that's on a run.  Expectations on how this quarter will go is clearly on the rise and you will need to keep an eye on things - how busy stores around you are (and if they're buying a lot), how the stock price acts, weather patterns, and general expectations.  You don't want to get caught with a stock that runs tremendously, but announces in-line or below expectations.  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.  Management raised guidance twice on their year already and they expected a stronger second half of the year compared to the first half.  I'm also expecting them to raise the dividend by at least 20% next February to $2.26, or more depending upon earnings.  The stock is trading around 21 times fiscal year 2015 earnings and currently is growing earnings at about 21%.  Valuation may look a little high, but the PEG ratio is at about 1,which is rather cheap compared to the industry average of 1.4.  My calendar 2015 price target is $110.  HD is 13.2% of my portfolio.

Honeywell (HON, 99.07) - Honeywell has quickly recovered from the stock market's correction and is well positioned again.  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 - something Honeywell has accounted for as a risk and are presently hedged against.  After what could be called stellar quarterly results, the risks appear to be minimal at this time.  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, but wait for a decent pullback of at least 5% from the highs before you begin.  My 2015 target is $110.  HON is 19.7% of my portfolio.

NPS Pharmaceuticals (NPSP, 33.18) - Third quarter results weren't as impressive as people were hoping for, however, the primary driver to this was expenses in preparing for more sales of Gattex/Revestive as they expand into Europe as well as preparing for obtaining and executing on an FDA approval for Natpara.  Additionally, Japan has granted Gattex with a orphan drug tag this week - providing benefits to the company and helping assure growth into the addressable market for Short Bowel Syndrome.  While little details regarding discussions with the FDA have been shared, I still feel the drug will be approved on their January 24 meeting.  This will be the key mover to the stock's price.  The main question that remains will be how large will the Total Addressable Market be?  I've made guesses (see my most recent analysis) and tried to keep them conservative.  Long term target remains at $40, but it won't get there until the FDA meeting most likely.  NPSP is 15.4% of my portfolio.

On Semiconductor (ONNN, 9.03) - Stock has been showing strength since their third quarter announcement.  Results were favorable and there were signs of strengthening despite what has been heard from other semiconductor companies regarding the worry of a slowing World economy.  Recently acquired companies are starting to add to the bottom line already and they're creating a strong presence in the automotive industry.  I've said in the past that this is a stock that can be difficult to own, however the risk/reward here is rather favorable.  It'll be important to make sure you sell some as we get higher and not always project continuing growth (a note for the author, from the author).  The price Target is at $11.  We want to continue to see/hear earnings and revenue growth in future earnings calls.  Anything less and the stock will get sold off.  On Semiconductor is 6% of my portfolio.

Threes:
Pepsico (PEP, 100.10) -  Though I hate doing it, I had to downgrade this stock for now.  It's getting too close to my price target for 2015.  That puts the stock at a multiple of over 19 time what I expect for them to earn in 2015.  It's possible that my earnings estimates are currently low.  With oil prices as low as they are, we could see accelerated margin growth due to lower input costs - both for corn and oil.  This is a company that's usually hedged out 6 months in front of themselves, though, so if that is the truth, it's still only a second half 2015 story.  As such, I can't help but feel that the stock is starting to get ahead of itself - even with Nelson Peltz trying to bring out more value.  Even if I adjusted earnings growth to something really strong - say 13% - my price target would only go up a few dollars.  With a yield at 2.6%, we're close to losing any benefit of holding this stock compared to a 10-year treasury as well.  I'd recommend buying this stock if it pulls back to $91 or less as long as this story stays intact.  PEP is 9.6% of my portfolio and my price target is $102 for 2015 on an estimated $5.10 of earnings.