Weekly Portfolio Summary

Stocks took another beating this week as the constant drop in oil prices has pulled the market along with it like a giant commodity.  This was especially painful to my portfolio which has been overly levered to energy, unintentionally, for a very long time now.  As such, I vacated my holding of Broadwind Energy.  I expect more downside to the stock due to a failed or extremely minimal PTC passing before the end of the year as well as decreased earnings and balance from both tower selling and service requests for their gearing division, which has been mostly levered to the oil and gas patches. Oddly enough, the stock is now higher than I sold it at.  No time to dwell, though, and my vision is longer-term than a day or two.  NPS Pharmaceuticals also presented at an Oppenheimer conference, but as expected, there wasn't anything new to help the stock rise.

Looking forward, we have a big week ahead.  On Monday, Honeywell presents on what their 2015 financial outlook.  I expect things to be typically conservative, but upbeat - even despite the impacts of the drop in oil prices.  Tuesday is a day that scares me, quite frankly.  Encana announced, towards the end of the day yesterday,that they will be having a conference call to discuss their CAPEX spending plan for 2015.  This scares me in part because it was announced late on a Friday - which rarely bodes well, as it looks like they're trying to hide something.  The stock has already dropped over 45% in the last 3 months on fears that the purchases the company has made over the last year is going to put them in a position that risks financial insolvency because the oil and gas prices are not high enough to allow them to pay the bills.  I'm not sure I've fully assessed this risk properly myself and as I come to realize the impact that prices has on the company's free cash flow, I realize why people see things as they do.  This announcement has the potential to set up an overall market reaction - especially to any other smaller company that purchased land when oil prices were high and has a stretched balance sheet.  I can't decide if I should sell before or just wait it out now that I'm this far down.  There's always a chance they can prove why they're in a better position when their major focus is still on gas, despite the focused expansion into nat gas liquids.

Although these are the only announcements from my portfolio, GE and 3M will also announce similar 2015 outlooks as Honeywell, which should help set the tone.  Add into that any other news from the oil patch and/or how oil, itself, performs and it could make for a very volatile week.

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, 27.04) - 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.  While I've felt the stock is oversold, it doesn't mean it is done selling off.  It's now well surpassed the lower bounds I thought we might reach and while we have yet to hear about drilling cut-backs, I expect they are coming and until we see them and know they are priced into the stock, it will continue to be painful.  I still haven't seen evidence that we should dive in and buy yet and it might be awhile before it is time.  My target price is $52 on 2014 earnings of $6.54 (personal estimate).  With expected cuts in production, I may have to lower this target for 2015 earnings.  Ensco is 7.8% of my portfolio.

Encana Corporation (ECA, 12.19) - Despite my ranking and my longer-term view, the short-term has me deathly afraid of this stock.  We have no visibility into how long oil prices can stay this low and this dramatically impacts any long term potentials I see the stock having.  I've left the stock a 1 for now, but with Tuesday's announcement soon on the way, it could quickly turn to a 4 as the risks of reduced free cash flow, earnings, and debt risk all affect this stock rather dramatically.  The risk/reward here is either things look somewhat promising and the worst is already priced in the stock vs. dramatic production and CAPEX cuts resulting in potential losses next year - not what I'd call a great risk/reward profile.  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 3.4% of my portfolio.


Twos:

Citigroup (C, 53.40) - Citigroup continues its process of getting in its own way, it seems.  After launching itself past $56 on a strong jobs report last week, it followed up with an announcement of a $3.5B write-off in the fourth quarter that will be due mostly to ongoing legal fees related to government investigations and fines along with some additional fees related to restructuring efforts.  This news sounds bad, and it's hard to consider it good, however, it seems the stock market hasn't hated the news.  Some reports consider this reaction to mean that the company is working to clean up the messes of the past.  I can understand it as the investigations continue to be related to the bank lending and hedging practices related to the downturn of the economy.  Another major factor has been the decline of the 10-year treasury, which after rising on jobs numbers, dramatically declined this week on continued global recession fears and the crashing oil driving people to the safety of bonds.  We continue to look forward to a new year which appears to have more upside potential than down.  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.  At this point, my 2015 estimates continue to be a book value estimation of $63.  Citi is 11.3% of my portfolio.

Home Depot (HD, 99.78) - The one theme that has continued to live strong with such a dramatic and fast decline in oil is how retail benefits from this.  As such, Home Depot continues to show strength.  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 22 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 14% of my portfolio.

Honeywell (HON, 95.88) - Pressures on the overall market along with concerns/risks over international exposure at a time that everywhere outside of the US is suffering has put some pressure on the stock this week, pulling back a little under 4%.  Their 2015 outlook this week should help determine what the future may hold and if my expectations are still in line.  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 for the long term, and if it pulls back a little bit more you could start getting into the stock.  For me, my position here is full - almost too full.  My 2015 target is $110.  HON is 20.2% of my portfolio.

NPS Pharmaceuticals (NPSP, 31.28) - No real new news has developed in this space since the third quarter earnings report.  They continue to work at expanding their market for their short bowel syndrome drug and prepare for their January meeting with the FDA.  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, while other market expansions that are expected to start in the first quarter of 2015 will add a little extra punch.  For the mean time, the stock is most likely to trade a little wildly through the rest of the year.  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, 9.65) - As anticipated, the stock has taken a breather after it's rocket shot to $10.  It's now pulled back about 5.5% this week on no real news.  This is likely due to people taking profits as well as the overall market sell-off.  That being said, this semiconductor has performed well, given the overall pressures on the market and I expect it to be one of the first and fastest to jump if sentiment changes.  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 not be done running higher until the January - March timeline  Historically speaking, this is the trend the stock has had - minus exceptional impact years (2008, 2009 for example).  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, 94.74) -  The stock pulled back some, as my fears of this running a little too much too fast appear to have come to fruition.  It hasn't pulled back enough for me to move this up to a two, but we're getting there.  I expect the stock to regain its footing again soon and then start working itself higher.  I believe there will be future margin growth and solid sales going into 2015 as we see impacts from the drop in commodity costs.  There are reports of new offerings coming out in 2015 that could provide an added growth spark that hasn't been considered yet, but we'll see.  It will also be important to keep an eye on yields and overall economy/sentiment.  I still think we're in a high risk that sectors like the one Pepsico is in will fall out of favor in 2015 for sectors that are involved with more rapid growth.  I'd recommend buying this stock if it pulls back to $91 or less as long as the current story of low interest rates and slow growth stays intact.  PEP is 10% of my portfolio and my price target is $102 for 2015 on an estimated $5.10 of earnings.