Sunday, November 9, 2014

Weekly Portfolio Summary

Another week has passed and a few major events have come and gone.  First, the mid-term elections have completed and we now have ourselves set with a republican majority congress and senate.  While having a majority, they don't have enough to override a veto from a democratic president, so we're looking at a government that might be mostly out of the way.  Additionally, the October non-Farm payroll numbers (jobs) came out and missed expectations, but weren't "bad."  The country continues to grow jobs, but it's happening slowly and there aren't any wage increases to go along with this.  This means the odds of inflation taking off are quite slim and I believe this will be a key driver to rates going higher.

Looking into the week ahead, I have 2 companies in my portfolio that report.  The first is NPS Pharma, which announces on Monday after the close.  The second is Encana, who has their call Wednesday morning.  Both will be calls that can significantly move their stocks.  NPSP will have a lot to speak to regarding their delayed BLA with the FDA.  Management will likely try to focus on earnings and how the distribution of their current drugs will be a key factor, but everyone wants to know more about the Natpara application and what the impact any changes to original plans may have on future earnings potential. Earnings estimates are at $0.03 with revenues of $60.1M. With Encana, the earnings, any hedges they've made for future sales, and their future guidance will be key, given the stock's tremendous fall as well as the fall of oil/natural gas prices.  Solid results from the quarter should be helpful, however, it'll be the future outlook that will be the biggest key.  Positive comments about the heating season we're entering, solid hedging to help assure strong prices, or any supportive information that can provide outlooks that oil and gas prices have bottomed and will recover will be the kind of info we're looking for.  Positive news pushes this stock to $20, but if there's disappointment, we're looking at $17.  Earnings estimates are at $0.42 with revenues of $1.7B.

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:
On Semiconductor (ONNN, 8.25) - The stock was upgraded after the the dramatic pullback in price and their third quarter earnings announcement.  Results were favorable and there were signs of strengthening despite what has been heard from other semiconductor companies as 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 not very favorable.  It'll be important to make sure you sell some as we get higher and not always project continuing growth.  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 5.6% of my portfolio.

Twos:
Broadwind Energy (BWEN, 6.64) - 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 4.8% of my portfolio


Citigroup (C, 53.75) - 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 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 10.9% of my portfolio.

Ensco PLC (ESV, 41.31) - Both oil and the deep water drillers appear to have found a bottom - for now at least.  Risk still exists, but there are geopolitical concerns on the rise again.  Additionally, as we reach closer to the end of the year, this may be one of the worst stocks of 2014 that turn into a great pick for 2015.  Stock prices have recovered over the $40 mark.  I would consider buying this stock anywhere below $45, however, I'm more in the camp of waiting to see if the stock will pull back below $40 before a consideration of purchase - no rush to buy this sector or stock as an investment.  After their most recent earnings call, they again reaffirmed their dividend and their jackups seem to be helping buoy revenues, though they are declining some yet.  We'll have to see what sales projections look like during the year end call as oil price depreciation has slowed the normal budgeting cycles we would've been reported on this last quarter.  My target price is $52 on 2014 earnings of $6.54 (personal estimate).  Ensco is 11.7% of my portfolio.

Home Depot (HD, 97.65) - 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.  The stock is trading around 21 times 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 2015 price target is $110.  HD is 13.1% of my portfolio.

Honeywell (HON, 96.77) - 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.  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, I'd buy some as we hit around $90 or below.  My 2015 target is $110.  HON is 19.5% of my portfolio.

NPS Pharmaceuticals (NPSP, 27.49) - The stock has recovered some from the stock market correction and disappointing FDA approval delay for Natpara.  There remain a lot of questions and concerns around the delay and we should hear more about that in the quarterly conference call.  It needs to be reiterated that this is a speculative stock play.  As such, it will swing wildly, you can make huge gains, but one wrong move you can have huge losses too.  At this point, my catalyst is the FDA ruling for Napara.  We need to know more about the delay, and how the Total Addressable Market may change if there are label changes.  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, 96.80) -  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 and it has proven to be one of the best growers of the CPG companies.  Input costs are going down and the superb leadership of the management team has been providing the strength we need to see for the stock to go higher.  A risk that has been developing, though, is that many of the executive team is starting to find new jobs - leaving for a lest robust bench of new leadership candidates, should Ms. Nooyi decide to step down.  I'd recommend buying this stock if it pulls back to $91 or less as long as this story stays intact.  PEP is 9.8% of my portfolio and my price target is $102 for 2015 on an estimated $5.10 of earnings.

Threes:
Encana Corporation (ECA, 18.91) - 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 5.1% of my portfolio.