Weekly Portfolio Summary

As this week closes off, we find ourselves a midst some old patterns and some new information.  First of all, we continue to see energy-related names sitting in the slaughter house as all 3 of my names that have any relation to that sector were beaten up badly.  Additionally, retail and consumer goods still show some strength, however, we did see that strength lighten up some while industrials and banks appear to pick up some steam.  Finally, we received a jobs number today that was so far off from where I guessed that I'm frankly ashamed of my prediction that we'd see a gain in jobs, but less than was expected.  These strong results indicate that our economy continues to strengthen and the strength appears to be accelerating.  This is at the same time that the vast majority of the rest of the world struggles to find its footing - making the USA a more desireable place to invest.  This creates a potential for changes in how big money managers want to position themselves with their holdings, thus making it time to be prepared to make moves of our own.  With accelerating economy growth, we are likely to see yield growth as the safety of bonds gets sold (have to be careful with this one, though - other countries might be buying our bonds for their own safety).  Similarly, it is likely we'll see similar trends in high multiple stocks that are considered safe havens - think drugs, food, utilities, etc.  Keep in mind what happened back in the spring of this year when rates started to rise, it's possible to see a similar reaction of sorts.  

The week ahead is expected to be rather uneventful for my portfolio.  One thing to watch is NPS Pharma's involvement at the Oppenheimer Healthcare Conference on Thursday.  While I really don't expect to hear anything new or any significant upates regarding the progress of the Natpara meeting with the FDA in January, it doesn't mean my expectations are right.  Additionally, it might give some insight into what analysts are expected and/or concerned about and how the stock price reacts to it.
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, 31.07) - 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 oversold, and we're right around the $30 mark I had a feeling it'd drop down to.  I still haven't seen evidence that we should dive in and buy yet, though.  My target price is $52 on 2014 earnings of $6.54 (personal estimate).  Ensco is 8.7% of my portfolio.

Encana Corporation (ECA, 14.73) - Oil prices continue to impact this stock, despite being primarily a Natural Gas play.  Part of that concern is related to purchases the company has made this year - that they were too expensive and puts them at debt risk.  While the purchases may have been expensive, they also sold gas assets to help cover those costs.  It has sold off to lows we haven't seen since 2003, before the company split off the oil play they had.  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 3.9% of my portfolio.


Twos:
Broadwind Energy (BWEN, 6.03) - 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 4.3% of my portfolio

Citigroup (C, 56.08) - 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.  The stock surged past the $55 price target I had for 2014 because of the strong jobs report we received.  This along with short term treasury yields climbing helps put a tailwind to the stock.  I project a book value of $61 by the end of 2015, which will also be my long-term price target, though this may be a conservative target, if the economy continues to show this growth  Typically banks trade around 1.5 times book value, but these have been anything but typical times for banks and those old standards may or may not apply.  Citi is 11.2% of my portfolio.

Home Depot (HD, 99.64) - 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 and a strengthening economy and consumer and you have a stock sector that is in favor.  Part of the run-up we've seen appears to have been moves taken in anticipation of a strong report.  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 13.3% of my portfolio.

Honeywell (HON, 99.69) - 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 19.9% of my portfolio.

NPS Pharmaceuticals (NPSP, 33.35) - 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 15.5% of my portfolio.

On Semiconductor (ONNN, 10.22) - 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.  The stock has been on a tear recently - going straight up, and as such I do anticipate a minor pullback.  That being said, with economic, sector and anual strength along with its announced plan to return 80% of free cash flow to shareholders via buybacks in its favor, I do not believe the stock will be done running higher until the January - March timeline  Historically speaking, this is the trend the stock has had - minus exceptional years (2008, 2009 for example).  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 6.8% of my portfolio.


Threes:
Pepsico (PEP, 97.76) -  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 times 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% and the fact that we may start witnessing a sector roation due to a growing economy, 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 9.8% of my portfolio and my price target is $102 for 2015 on an estimated $5.10 of earnings.

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