Weekly Portfolio Summary

The markets, and fortunately my portfolio, had a strong week.  Key drivers came on US economic news from the Philly Fed, stating the economy is improving much better than people are thinking.  Additionally, we were surprised to hear China's central bank is cutting interest rates to stimulate growth and the ECB's Draghi made public statements yesterday that have many traders believing he'll be making moves to help stimulate the European economies.  Add this in with the fact that the US stock markets have always gone up from November 15 to the end of the year for the last 10 years, you find the market has some legs.  At the same time, I believe some caution must be maintained.  The S&P 500 has been making a very fast and dramatic run and is approaching the top of the channel it's maintained since 2012, as the below 5 year daily chart shows.  

I'm not big on technicals, however, they need to be acknowledged and respected as well.  While it's certainly possible that this trend could be broken to the upside, a trend this strong and this long needs something pretty significant to bust through.  Odds are more favorable that we break through a little and then pull back - perhaps the story as we finish the year and start 2015, or something sooner, like a bad US jobs report on Dec 1 that makes people pull back and try to figure out if something is going wrong.  Any way you slice it, though, there's a strong pattern where we see a V-shaped bottom, it jumps back up near the top of the line, it follows the ceiling for a little while, maybe appearing to break though a little, and then we watch as the markets correct themselves again.

For the week ahead, we're going into a holiday-shortened week.  However, it's going to be far from uneventful.  The biggest key days will be Thursday and Friday.  Thursday, you ask?  Yep, despite the US being on holiday, this will be a significant day to how the markets open on Friday.  OPEC is supposed to have a little pow-wow and "determine the fate of oil prices," as many people see it.  Oil is what created the last V-shaped bottom above, as prices dropped from the 90s down to the mid-70s per barrel.  Will OPEC be ok with this?  Will they try to push the US oil boom out of competition by letting prices drop, or will they say they need to cut the supplies so oil prices rise and be more profitable to them?  This is just a novice's opinion, but I feel like this could be huge.  Right now retail, dining, and packaged goods companies are all doing well as input costs are down and the consumer feels like they have more to spend.  Changing that dynamic likely makes the market pause to re-calibrate and most likely rotate from those companies I described to the varying Energy related names instead.  Friday is "Black Friday" in the US.  The day where hoards of Americans cram themselves in retail stores to fight over price cut items.  A little of a cynical picture, I suppose, but the key here is that from Friday until Christmas is retail's money-making period.  We'll find out how strong the consumer really is and project how retail stock will perform in kind.  While I don't expect anything blockbuster, I do feel it'll be a solid year.

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, 8.615) - 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.  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, 7.32) - The drop in oil prices has been a key impact to the downward force this stock had suffered.  A poor earnings report did not help matters any either. Since the stock crashed out a few days after their earnings report, the stock has begun a relatively steady recovery.  There are still strong headwinds because as fossil fuels become cheaper, alternative energies become less of a necessity and lose their advantage regarding cost to produce benefits.  Additionally, if the Oil & Gas companies they serve for gearing services slow down, the improvements they reported this quarter will also evaporate.  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.  The downside appears to be limited, for now at least.  Current price target is $10.50, though I'm not sure the current risks will allow it to climb that high.  BWEN is 5.1% of my portfolio


Citigroup (C, 53.66) - 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 10.5% of my portfolio.

Ensco PLC (ESV, 39.87) - This stock continues to be bound by the fate of oil.  That being said, it seems to be creating a base as it has yet to press past it's multi-year low.  Weakness continues and there's grown to be a fair amount of negativity on the oil, but not enough to feel like it's time to go contrarian.  It's also this same reason that I don't buy more stock.  I need some proof that things are turning around.  Until then, I'm not buying more and will just reap the dividend.  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.  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.  Competitor Seadrill announces this week, so keep an eye out for what they say and how it impacts the stock.  My target price is $52 on 2014 earnings of $6.54 (personal estimate).  Ensco is 10.9% of my portfolio.

Home Depot (HD, 98.28) - The stock took a little bit of a hit after announcing what was felt to be a one cent miss on expectations.  Since then, the price has recovered and is slightly up from a week ago.  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 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 12.9% of my portfolio.

Honeywell (HON, 98.23) - 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, but wait for a decent pullback of at least 5% from the highs before you begin.  My 2015 target is $110.  HON is 19.3% of my portfolio.

NPS Pharmaceuticals (NPSP, 32.00) - 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.  While little details regarding discussions with the FDA have been shared, I still feel the drug will be approved on their January 24 meeting.  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 14.6% of my portfolio.

Pepsico (PEP, 98.89) -  Organic growth is on the rise again and Pepsi 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.  We're starting to see some risks creep in now, though.  Activist investor Nelson Peltz and his Trian fund have increased his stakes in the company.  Despite the performance we've seen, he's still pushing to break the company up.  If he ever gets his way, there might be a short-term pop, but this is a management team I trust to have done their work.  They say both companies will be hurt when split, I believe them.  Additionally, that management team has started to get a bit weaker as many people who were thought to be next in line behind Ms. Nooyi, should she step down, find new career opportunities outside of Pepsico.  I don't know if this is an indication of Ms. Nooyi, the improving job markets, or people not wanting to be involved in a potential break-up.  It is something to keep an eye on, though.  I'd recommend buying this stock if it pulls back to $91 or less as long as this story stays intact.  PEP is 9.7% of my portfolio and my price target is $102 for 2015 on an estimated $5.10 of earnings.

Threes:
Encana Corporation (ECA, 18.58) - After reporting third quarter earnings, I don't feel a strong sense that the company is protected from any sort of downward pressure of oil.  To their benefit, Natural gas prices are still over $4 like they were a year ago and winter weather has started early and strong.  They've also executed their plans to turn the company around and improve the balance sheet at a pace so fast that they're 2 years ahead of schedule.  Providing this continues, the gas side of the business may be able to buoy the business overall, but if gas prices start dropping, there could be more pain.  The stock price is awfully close to all-time lows, but has a strengthening balance sheet, cash flow and operating margins.  It's a mixed bag of positive mostly within the company and their execution with a negative of sector/outer impacts.  The stock is just too low to sell and I don't feel there really is much more down side from here.  It becomes something I sell if things turn sour all over to raise cash.  At the same time, I can't find any catalysts to help this charge up.  It will most likely continue to sit between $17.50 and $19 as it did between Feb 2013 and Feb 2014.  All things being equal, I'm giving 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 4.9% of my portfolio.